A Nobel Prize in economics doesn’t necessarily translate into money-management prowess.
However, a pair of mutual funds based on Richard Thaler’s groundbreaking work in behavioral finance, which earned him the Nobel in economics earlier this month, are putting in solid performances, so far.
Thaler is a principal at Fuller & Thaler Asset Management, which defines behavioral finance as “the combination of cognitive psychological theory and conventional finance to provide explanations for why people make irrational investment decisions.”
This firm is the investment adviser behind the Fuller & Thaler Behavioral Small-Cap Equity Fund FTHNX, +1.25% a mutual fund that “aims to capitalize on behavioral biases that may cause the market to over-react to old, negative information or under-react to new, positive information,” according to the adviser’s website.
“There are two kinds of mistakes that produce buying opportunities: over-reaction and under-reaction,” the fund’s prospectus reads. “Other investors may over-react to bad news and losses (e.g., panic), or they may under-react to good news (e.g., not pay attention).”
In developing the fund’s portfolio, Fuller & Thaler looks for events “related to insider buying, earnings announcements, and other news that suggest these types of investor misbehavior,” before assessing the company’s fundamentals.
“If Fuller & Thaler determines that an investor mistake is likely and the company has solid fundamentals, the portfolio managers generally buy the stock.”
The fund, which has maintained a five-star rating from Morningstar for five years, has outperformed the comparable Russell 2000 RUT, -0.92% consistently since its inception in 2011. It has gained 18.3% over that period, compared with the 15% rise of its benchmark. (Those performance statistics, from the fund’s website, are through the end of June.) The fund’s investor share class charges an expense ratio of 1.07%, and the fund has about $246.5 million in assets.
Thus far this year, the fund is up 14.7%, above the 10.9% rise of the small-cap Russell.
Opinion: 12 things you can learn about investing from Nobel Prize winner Richard Thaler
Much of Thaler’s work as an economist concerns what he calls “nudges,” or ways to incentivize actions. For example, it has been estimated that his theories on auto-enrollment and auto-escalation in workplace savings accounts have added nearly $30 billion to retirement accounts over the past decade.
Another Thaler-related fund has also posted strong historical results: the Undiscovered Managers Behavioral Value Fund UBVLX, +0.46% which is subadvised by Fuller & Thaler Asset Management but distributed on a limited basis by J.P. Morgan.
The fund “looks for companies with significant insider buying and share buybacks—which are strong indicators of future return potential following an underperformance in the stock price. The team seeks to lock in gains by selling stocks with large amounts of insider selling, new share issuance or when M&A activity occurs.”
The Undiscovered Managers is up 8.4% thus far this year, compared with the 4.9% rise of the Russell 2000 Value Index RUJ, -0.66% The following FactSet chart compares the fund (in gray) against both the Russell 2000 (green) and the Russell 2000 Value index (blue) over a 15-year period.
Thaler doesn’t appear to be directly involved in the management of the funds. Fuller & Thaler didn’t respond to a request for a comment.
This kind of long-term outperformance is rare for actively managed funds, where the components of the portfolio are individually selected by a manager or team, as opposed to passive funds, which simply track an index by holding what it does, and in the same proportion. According to Morningstar data, only 38.3% of small-cap value funds have beat their benchmark over a 15-year period.
Mutual fund investing involves risk, including loss of principal. There is no guarantee that this, or any, investment strategy will succeed; the strategy is not an indicator of future performance, and investment results may vary. Diversification does not ensure a profit or guarantee against loss. Small- and mid-cap investing involves risks not associated with investing in more established companies, such as greater price volatility, business risk, less liquidity, and increased competitive threat.
**By clicking the link above, you will be redirected to a website maintained by a third party.
FullerThaler is a brand name of Fuller & Thaler Asset Management, Inc.
The Fund’s investment adviser, Fuller & Thaler Asset Management, Inc. (“FullerThaler” or the “Adviser”) has contractually agreed to waive its management fee and/or reimburse Fund expenses so that total annual operating expenses for the FullerThaler Funds are as stated below through January 31, 2025:
FullerThaler Behavioral Small-Cap Growth Fund does not exceed 1.30%, 1.80%, 1.25%, 0.96% and 0.86% for A Shares, C Shares, Investor Shares, Institutional Shares and R6 Shares, respectively.
FullerThaler Behavioral Mid-Cap Value Fund does not exceed 1.20%, 1.70%, 1.15%, 0.79% and 0.69% for A Shares, C Shares, Investor Shares, Institutional Shares and R6 Shares, respectively.
FullerThaler Behavioral Unconstrained Equity Fund does not exceed 1.30%, 1.80%, 0.97% and 0.87% for A Shares, C Shares, Institutional Shares and R6 Shares, respectively.
FullerThaler Behavioral Small-Mid Core Equity Fund does not exceed 1.26%, 0.87% for A Shares and Institutional Shares, respectively.
FullerThaler Behavioral Micro-Cap Equity Fund does not exceed 1.29% for Institutional Shares.
FullerThaler Behavioral Mid-Cap Equity Fund does not exceed 0.79% for Institutional Shares.
FullerThaler Behavioral Small-Cap Equity Fund does not exceed 1.04%,1.64%,1.05%.0.75%.0.64% for A Shares, C Shares, Investor Shares, Institutional Shares, and R6 Shares, respectively.
***No minimum initial investment for certain investors including group retirement plans. The expense limitation does not apply to (i) interest (other than custodial overdraft fees and expenses associated with the Fund’s participation in an alternative liquidity program), (ii) taxes, (iii) brokerage fees and commissions, (iv) other extraordinary expenses not incurred in the ordinary course of the Fund’s business, (v) dividend expense on short sales, and (vi) indirect expenses such as acquired fund fees and expenses incurred by the Fund in any fiscal year.
Gross Expense Ratios
FullerThaler Behavioral Small-Cap Growth Fund does not exceed 1.39%, 2.00%, 1.42%, 1.12% and 0.98% for A Shares, C Shares, Investor Shares, Institutional Shares and R6 Shares, respectively.
FullerThaler Behavioral Mid-Cap Value Fund does not exceed 1.20%, 1.82%, 1.24%, 0.96% and 0.82% for A Shares, C Shares, Investor Shares, Institutional Shares and R6 Shares, respectively.
FullerThaler Behavioral Unconstrained Equity Fund does not exceed 1.73%, 2.32%, 1.42%, 1.23% for A Shares, C Shares, Institutional Shares and R6 Shares, respectively.
FullerThaler Behavioral Small-Mid Core Equity Fund does not exceed 1.56%, 1.29% for A Shares and Institutional Shares, respectively.
FullerThaler Behavioral Micro-Cap Equity Fund does not exceed 2.13% for Institutional Shares.
FullerThaler Behavioral Mid-Cap Equity Fund does not exceed 5.23% for Institutional Shares.
FullerThaler Behavioral Small-Cap Equity Fund does not exceed 1.04%,1.64%,1.05%.0.75%.0.64% for A Shares, C Shares, Investor Shares, Institutional Shares, and R6 Shares, respectively.
Investors should consider the investment objectives, risks, and charges and expenses of a mutual fund carefully before investing. The prospectus contains this and other information about the fund and may be obtained by calling 888-912-4562. The prospectus should be read carefully before investing.
The Russell 2000® Index, Russell 2000® Growth, Russell MidCap® Value, Russell 3000®, Russell Micro-cap®, Russell 2500™, Russell MidCap®, and the S&P 500 Index are widely recognized unmanaged indices of equity securities and are representative of a broader domestic equity market and range of securities than is found in the Fund's portfolio. The Russell 2000® measures the performance of the small cap segment of the US equity universe. The Russell 2000® is a subset of the Russell 3000® Index and represents approximately 10% of total market capitalization of that index. The Russell 2000® Growth Index measures the performance of those Russell 2000 companies with higher price/book ratios and higher forecasted growth values. The Russell MidCap® Value Index measures the performance of those Russell Midcap® companies with lower price/book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000® Value Index . The Russell Microcap® Index measures the performance of the microcap segment of the U.S. equity market. It makes up less than 3% of the U.S. equity market. It includes 1,000 of the smallest securities in the Russell 2000 Index based on a combination of their market cap and current index membership and it also includes up to the next 1,000 stocks. The Russell 3000 Index is a market-capitalization-weighted equity index maintained by the FTSE Russell that provides exposure to the entire U.S. stock market. The index tracks the performance of the 3,000 largest U.S.-traded stocks which represent about 98% of all U.S incorporated equity securities. The Russell 2500™ Index is a broad index, featuring 2,500 stocks that cover the small- and mid-cap market capitalizations. The Russell 2500™ is a market cap-weighted index that includes the smallest 2,500 companies covered in the Russell 3000® universe of United States-based listed equities. The Russell Midcap® Index measures the performance of the mid-cap segment of the US equity universe. The Russell Midcap® Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap® Index represents approximately 31% of the total market capitalization of the Russell 1000® companies. The Russell Midcap® Index is constructed to provide a comprehensive and unbiased barometer for the mid-cap segment. The Russell Index related marks are owned by FTSE Russell. The Russell Midcap® Index measures the performance of the mid-cap segment of the US equity universe. The Russell Midcap® Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap® Index represents approximately 31% of the total market capitalization of the Russell 1000® companies. The Russell Midcap® Index is constructed to provide a comprehensive and unbiased barometer for the mid-cap segment.
Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. It is not possible to invest directly in the index.
*FullerThaler is the advisor to the following Funds: FullerThaler Behavioral Small-Cap Equity Fund, Fuller Thaler Behavioral Small-Cap Growth Fund, FullerThaler Behavioral Mid-Cap Value Fund, FullerThaler Behavioral Unconstrained Equity Fund, FullerThaler Behavioral Small-Mid Core Equity Fund, FullerThaler Behavioral Micro-Cap Equity Fund, and FullerThaler Behavioral Mid-Cap Equity Fund which are distributed by Ultimus Fund Distributors, LLC. However, FullerThaler is not affiliated with Ultimus Fund Distributors, LLC
The Behavioral Edge® is a registered trademark of Fuller & Thaler Asset Management, Inc.
FullerThaler is the brand name of Fuller & Thaler Asset Management, Inc. This website is directed only to US institutional investors. FullerThaler may only transact its investment advisory business in states where it is notice-filed as an investment adviser or otherwise exempt from state requirements. The information on this website is neither an offer to sell nor a solicitation of an offer to buy any product or service in any jurisdiction where such offer, solicitation, purchase or sale would be unlawful. Nobel Prize® is a trademark of the Nobel Foundation.
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