3D Printing

3D Printing Fund to Undergo Liquidation

Stock markets worldwide have taken a hit and not much has been hit harder than 3D printing stocks. After reaching what many analysts deemed to be over-inflated prices, most pure-play 3D printing stocks plummeted dramatically, even leading to two class action lawsuits about misleading investors. It seems to have gone a bit under the radar, but, about two weeks back, the 3D Printing, Robotics, and Technology Fund, the first mutual fund devoted specifically to 3D printing, has also been affected. A reader, named Christopher Solomon, supplied me with a letter sent to shareholders announcing the liquidation and dissolution of the fund.  The letter reads:

On October 14, 2015, the Board of Trustees (“Board”) of Outlook Funds Trust (the “Trust”) approved a Plan of Liquidation and Dissolution (the “Plan”) pursuant to which the assets of the Fund will be liquidated and the proceeds remaining after payment of or provision for liabilities and obligations of the Fund will be distributed to shareholders. The Fund’s investment adviser (the “Adviser”) has recommended that the Board approve the Plan based on market conditions and economic factors adversely affecting the ability of the Fund to conduct its business operations in an economically efficient manner, and the Board concluded that it is in the best interest of the Fund’s shareholders to liquidate the Fund pursuant to the Plan.

In anticipation of the liquidation, the Fund will stop accepting purchases into the Fund on October 15, 2015. Thereafter, the Fund will begin its process of winding up and liquidating its portfolio assets as soon as reasonably practicable. As a result, the Fund will not be pursuing its investment objective after October 15, 2015. Reinvestment of dividends on existing shares in accounts which have selected that option will continue until the liquidation.

The 3D Printing, Robotics, and Technology Fund was originally launched as a means of allowing people to invest in 3D printing stocks, taking advantage of an exciting and increasingly important technology through long-term investment, while offsetting the risks of a somewhat new tech that might be especially vulnerable in the market.  Offsetting the risk of pure-play 3D printing companies, like Stratasys and Arcam, was meant to be made possible through additional investment in tech companies that were involved in the technology, but not primarily focused on it, like GE and Dassault Systemes.

Christopher tells me that his enthusiasm for the technology came from owning his own desktop 3D printer, which eventually led him to consider 3D printing stocks. “I was optimistic, and my feelings of optimism weren’t derived from articles in the media, or from the performance of stocks. My optimism came from the personal experience and excitement that comes with owning and using a 3D printer, and being a part of a burgeoning industry with incredible potential,” Christopher says.

He learned about the Fund in April, 2014, when 3D printing stocks had yet to tumble, and invested the minimum $2,500 necessary to open an account, adding, “I also decided to automatically invest a small amount each month.” Many 3D printing stocks saw some pretty astonishing highs, particularly 3D Systems and Stratasys, but were considered overpriced compared to their P/E ratios.  So, as they returned to low levels, the Fund, began to reflect the trend of 3D printing stocks as a whole. Christopher says, “Understandably, this made the value of 3DP Funds drop. This did not concern me because I was investing for the long term, and not emotionally invested in short-term market corrections and fluctuations.”  Instead, he had the same philosophy as the Fund itself, which sought “long term capital appreciation”, according to its prospectus.  In December, 2014, Charles says, shareholders were told to hang tight, despite the drop of 3D printing stocks, with the letter stating, “We understand and share in any frustration with returns thus far. That said, our investment strategy has always been and continues to be long-term, as we feel 3D printing is at the forefront of a manufacturing revolution.”

Christopher tells me, “You can imagine my surprise when, on October 15th, 2015 (after only 1.5 years of investing in the fund) I received a letter from the Fund informing me that ‘the continuation of the Fund is no longer in the best interest of the Fund or its shareholders. Accordingly, on October 14, 2015, the Trustees voted to liquidate the Fund and terminate the Fund’s legal existence.’ I am left with 2 options: 1) Redeem my shares (at a loss) [or] 2) Hold my Shares Until Liquidation (which will occur on November 13, 2015) (at a loss). I take great issue with the fact that I am essentially being forced to take a loss on my investment, solely due to the Funds inability to continue operations ‘in an economically efficient manner’.”

Alan Meckler, who co-manages the Fund with son John Meckler, tells me that they still believe in the fund’s overall philosophy, that they still see the industry, and investment in the industry, as a whole to be driven towards success, but that the necessary capital to ensure the Fund’s continued existence just wasn’t there. “The problem is that the costs to manage a public mutual fund, even a small one, are over $500,000 a year,” Alan says, “and one would need to get huge infusions of investment money to overcome the steep losses we face(d).  Interestingly John and i were the two largest investors in the fund. John and I are setting up our own private fund that will use the same philosophy but our annual costs will be negligible.  In time we might open our private fund to outsiders willing to put in a minimum of $100,000.” 

3d printing mutual fund performance with other stocks

Now that the 3D printing hype has died down and 3D printing stocks are at such low points, some attribute the decline of stocks related to this sector to the two companies once considered industry leaders.  Both 3D Systems and Stratasys are being sued with allegations of stock inflation.  Once the stocks of the two industry leaders crashed, the stocks of many of the other, smaller 3D printing businesses went with them, scaring off new investors and, possibly, draining life from the 3D Printing, Robotics, and Technology Fund.  The above chart could reflect this, in that SSYS and DDD dropped by 73% and 79%, since April, 2014, while Arcam and the Fund only dropped 24% and 34%.  GE, on the other hand, has increased almost 14% in that time.  It’s possible that the rest of the 3D printing industry were being grossly affected by the stock prices of Stratasys and 3D Systems’ stocks alone.

The Fund’s liquidation process is anticipated to continue until November 13, 2015.  Once completed, liquidation distributions will be distributed among the shareholders based on their stake in the fund, at which point, the Fund will be “terminated and dissolved.” In the end, Christopher believes that he may have been better off had he bought individual shares in the companies or setup a Motif investment portfolio, commenting, “I would still be at a loss right now, but I would at least of the option to ride it out, and wait for the stocks to increase as the industry comes to a more fair and realistic valuation.”

Neither the Fund’s managers nor Christopher believe that the fate of the Fund reflects the technology and its fate.  Christopher ends, “3D printing, and the improvement and innovation of additive manufacturing techniques are here to stay and progressing wonderfully. It’s a young and exciting industry that is changing rapidly, and democratizing the creation of ideas.”  Short-sellers may have been able to profit off of the 3D printing hype, but long-term investors may have been taken for a wild ride.  If Gartner’s Hype Cycle can be extrapolated to 3D printing stocks, it’s possible that, now, the time for stable growth is ahead for what is a relatively young industry, particularly as 3D printing feeds off of and into the emerging mixed reality ecosystem, which will include AR/VR, 3D scanning, and haptic devices and gesture control. But, if the Hype Cycle can’t be extrapolated to the stock market, then who knows?