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Post by Chahta on Jan 26, 2022 15:50:42 GMT
Certainly 1 way of looking at it. Like I said, different strokes for different folks. In the end if one gets what they want or need from their portfolio then all is good. No sense arguing which way is "best" because in the end it is only 1 opinion of millions. Besides, one would assume that reasonable portfolios would not consist only of leveraged CEFs but growth as well.
In my previous life I was a mechanical engineer. If I approached work with blinders that there was only 1 way to accomplish something, I was doomed to failure. Failure of not meeting a budget, failure of not meeting the goal or any other number of failures.
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Post by retiredat48 on Jan 26, 2022 17:13:46 GMT
Some comments:
--YES, leveraged FI CEFs such as PDI, have a market price risk (I call it volatility), that is more than OEF bond funds. That is because you are selling any PDI to another investor...not redeeming to the fund. The fund is CLOSED. Thus fluctuations can and do occur same as stock bear markets.
--Like, PDI went to about a 30% premium!! You could have sold...no one stopping you. Now it loses that premium, a large decline yet the underlying holdings contributed none of this.
--So, if you are selling a home in upstate NY, and a harsh snowstorm hits, and no-one comes to your open house, mark to market means your home is worth zero. But you know better--it is not.
-- Ditto in CEFs. If buyers simply step-back for a few days w/o buying, CEFs will always have some sellers...thus steep declines can occur...but do mean-rebound back to underlying holding values. With the stock market collapsing for a few days, expect same to a degree for CEFs. Such events also create opportunities to buy. It is why many investors keep nibbling away, adding to holdings.
-There are many investors who have owned the PDIs and PCIs for long term, enjoyed the yield, especially enjoyed the special dividends in many decembers, and are way ahead of standard issue bond funds.
Of course...not for everyone.
R48
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Post by mozart522 on Jan 26, 2022 17:42:01 GMT
"-There are many investors who have owned the PDIs and PCIs for long term, enjoyed the yield, especially enjoyed the special dividends in many decembers, and are way ahead of standard issue bond funds."
Well, they are all ahead of standard issue bond funds. But they also had a 32% max drawdown. And many likely could not hold during that period. I believe you were suggesting to Chang to look at this fund and I'm just giving some additional information other than the generous yield.
I'm not against the fund, it is just another choice we have.
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Post by FD1000 on Jan 26, 2022 17:58:34 GMT
I tend to agree with FD1000 . Only two things are important in investing; total return and the risk you take to get it. So labels like "bond fund" or "stock fund" are meaningless in that context. So PDI has a much lower TR compared to VTI since PDI inception approx 10 years ago BUT PDI has a higher SD, a lower best year, a much higher worst year, a much higher max drawdown, and lower Sharpe and Sortino. "How many standard issue, vanilla bond fund holders got 19% total return in last 3 years." Or how many vanilla bond fund holders suffered through over 14% SD and max drawdown of 32% in the last 10 years? In short, PDI seems like a bond fund that has metrics of a risky stock fund without the compensating returns. Another example, to me, of those who can be blinded by yield. Moz for income. The TR, grow your portfolio to the max (or at least to provide an income stream) approach is a very valid way to invest. FD1000 does it well. But so is set it and forget it taking 9% each year for income. Just not totally my way of doing it. I am somewhere in between. Set and forget is a style just as 1) Holding only funds or stocks or both 2) Buckets 3) Holding 5 funds or 15 funds. 4) Trading once a month or 6 times or once every 3 years or based on something else. It has nothing to do with risk-adjusted performance. The only and right way to compare investment is by total performance. If you care, and many do, then look for risk-adjusted performance. Everything else is noise such as premium, trading, when, what, don't care what else you do. What ever you do with one choice, you can do with the other choice. You are a good trader, stocks will do more than CEFs. You can observe premium with CEF, you can do it with stocks too. Investments are full of jargon, terms and BS. At the end, only the results matter. In 2019-20-21...SPY made 100% with lower SD than PDI who made just 18.7% total for 3 years.
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Post by richardsok on Jan 26, 2022 19:53:03 GMT
I don't fully get your post, FD. I think I read from your post that PDI only returned 19% (total return) in last three years. So while you cherry-pick the time period, what's wrong with 19% in three years. This is a bond fund, for heaven's sake, not a stock fund. And I could cherry-pick a time frame of a few months ago, where it is now likely that by years end, PDI will have beaten the pants of SPY. Compare apples to apples. How many standard issue, vanilla bond fund holders got 19% total return in last 3 years. FI performance is what counts. R48 I tend to agree with FD1000 . Only two things are important in investing; total return and the risk you take to get it. So labels like "bond fund" or "stock fund" are meaningless in that context. So PDI has a much lower TR compared to VTI since PDI inception approx 10 years ago BUT PDI has a higher SD, a lower best year, a much higher worst year, a much higher max drawdown, and lower Sharpe and Sortino. "How many standard issue, vanilla bond fund holders got 19% total return in last 3 years." Or how many vanilla bond fund holders suffered through over 14% SD and max drawdown of 32% in the last 10 years? In short, PDI seems like a bond fund that has metrics of a risky stock fund without the compensating returns. Another example, to me, of those who can be blinded by yield. Moz " Only two things are important in investing; total return and the risk you take to get it."Hard to argue with that, as far as it goes, Moz. But perhaps it is a little simplistic. Assume I'm a retiree in need of income and hoping to avoid risk. Assume also I have good reason to be confident that a CEF's management can continue to earn (or OVER earn) generous distributions through market upheavals/ good and bad. In such a case, I might be justified in simply holding PDI -- forever. Its share price might be immaterial to me so long as the satisfactory steady income stream is being earned. that, to my mind, is one aspect that makes Pimco so valuable; namely they are clear about their coverage. Moreover the world is full of fearful people who know nothing about the market, and yet need income in a low-interest rate world. If granny is raking in a steady 7 or 8% per year but withdrawing 4% -- it's not a stellar success .... but it's comforting and darn good enough. I'm a trader. (guilty as charged.) But my wife is an investing babe in the woods. (I KNOW she would panic and sell at the worst possible moment.) When the time is right I intend to set her up with our fully-paid condo, some preferreds, some Pimco CEFs, a bit of gold & commodities and some SCHD -- intending to give her at least a reliable 6-7% long term, hopefully hedged against inflation, and to hell with the market.
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Post by mozart522 on Jan 26, 2022 23:00:50 GMT
If a person wants income and understands what PDI is and the potential risk then to price then of course they are justified. 9%, consistent income does not come without risks is all I'm saying. If distributed income is your only goal, you would do better with PSLDX which has sustained a 1% monthly payout for 14 years and has better risk metrics.
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Post by retiredat48 on Jan 26, 2022 23:14:09 GMT
richardsok posted:
(Moz:) " Only two things are important in investing; total return and the risk you take to get it."
Hard to argue with that, as far as it goes, Moz. But perhaps it is a little simplistic. Assume I'm a retiree in need of income and hoping to avoid risk. Assume also I have good reason to be confident that a CEF's management can continue to earn (or OVER earn) generous distributions through market upheavals/ good and bad.
In such a case, I might be justified in simply holding PDI -- forever. Its share price might be immaterial to me so long as the satisfactory steady income stream is being earned. that, to my mind, is one aspect that makes Pimco so valuable; namely they are clear about their coverage.
Moreover the world is full of fearful people who know nothing about the market, and yet need income in a low-interest rate world. If granny is raking in a steady 7 or 8% per year but withdrawing 4% -- it's not a stellar success .... but it's comforting and darn good enough.
I'm a trader. (guilty as charged.) But my wife is an investing babe in the woods. (I KNOW she would panic and sell at the worst possible moment.) When the time is right I intend to set her up with our fully-paid condo, some preferreds, some Pimco CEFs, a bit of gold & commodities and some SCHD -- intending to give her at least a reliable 6-7% long term, hopefully hedged against inflation, and to hell with the market.
------------------------------------------------------------- R48 in bold...+1...I completely agree.
My feeling is if I hear one more time (making it one thousand and one), that risk-adjusted returns are what count, I'm gonna scream!...Especially when comparing a fixed income fund with a stock fund.
How about this year...PDI is killing the S&P...and high tech stock funds. So what?
And richardsok, to buttress your points. I have advised some retiring people with very modest portfolios...let's say $100,000. What difference does it make if sometime that portfolio drops by 15%...or 25%...or 50%. None, as they still cannot live off of any principal. So if they invest in various yield-boosters, they understand they can simply spend the annual dividend yield...and generally no more. Now that is important. So I boosted their portfolio yield from let's say 1.5% ($1500) to 7% ($7000) and that was terrific to them.
Some Fidelity Forum posters, wealthy and some not, are 100% PIMCO FI CEFs. They spend the yield. They will make it to the end. It's all they need. They would never entertain going 60/40, with investments that may provide a "risk adjusted return" that is better. They make a strong case to themselves that stock markets are a huge gamble today.
I can count on one hand the number of investors I know who really consider risk-adjusted returns are the driving force. Investors comprehend "risk" relative to an investment and permanent losses; they comprehend the desirability of spending yield, not principal; and they comprehend that even cash under the pillow has high risk (risk of theft; fire; inflation, etc).
I have the highest percentage "cash" ever in my portfolio this year. It may be my best risk-adjusted return this year. But it is no way to invest for the long haul. So should everyone go to 100% cash--now? NO. It is one thing (and quite difficult) to predict risk-adjusted returns for the future. Easy to do looking backwards.
I just jumped off my soapbox.
R48
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Post by FD1000 on Feb 6, 2022 13:41:12 GMT
CEF vs stock should be a mathematical, logical debate based on facts.
Claim: Moreover the world is full of fearful people who know nothing about the market, and yet need income in a low-interest rate world. If granny is raking in a steady 7 or 8% per year but withdrawing 4% -- it's not a stellar success .... but it's comforting and darn good enough......a reliable 6-7% long term, hopefully hedged against inflation, and to hell with the market.
FD Reality: Any investor can set up a reliable income using the SP500 (VFIAX, SWPPX, FXAIX). It takes about 2 minutes to set up a month sell order for a specific amount and date and let it run for years.
========== Claim: My feeling is if I hear one more time (making it one thousand and one), that risk-adjusted returns are what count, I'm gonna scream!...Especially when comparing a fixed income fund with a stock fund.
FD reality: the more I read about CEFs, the more I want to cry and punch my neighbor, after all, I use numbers to make my points.
========== Claim: Some Fidelity Forum posters, wealthy and some not, are 100% PIMCO FI CEFs. They spend the yield. They will make it to the end. It's all they need. They would never entertain going 60/40, with investments that may provide a "risk adjusted return" that is better. They make a strong case to themselves that stock markets are a huge gamble today.
FD reality: it's never CEF vs 60/40, it's CEFs vs stocks. These wealthy people miss on a huge performance compare to stocks since 2009. I know many wealthy people who own only stocks. In fact, very rich investors own stocks not CEFs.
========= Claim: I can count on one hand the number of investors I know who really consider risk-adjusted returns are the driving force. Investors comprehend "risk" relative to an investment and permanent losses.
FD reality: most of the retirees I know think that risk-adjusted returns is the most important aspect of investing, otherwise they would be in 100% stocks because we know stocks have higher SD but better performance over several decades.
========= Claim: I have the highest percentage "cash" ever in my portfolio this year. It may be my best risk-adjusted return this year.
FD reality: the above is your perception and trading acumen, and it worked nicely. Other traders and investors here or on other boards have done other things. My portfolio made more money than 50/50 and a lot more than PDI in the last 3 years + much lower SD. That doesn't prove the point. The discussion is about holding a position for 20+ years, no trading.
========= Let's prove using simple math.
Example 1: PDI vs VFIAX(SP500) for 3+5 years
Let's see performance in the last 3+5 years (link) + (link) 3 years performance: VFIAX=16%...PDI=5.9%........SD: VFIAX=17.4...PDI=20.7.....Sharpe: VFIAX=1.37...PDI=0.35 5 years performance: VFIAX=18.4...PDI=8.6%........SD: VFIAX=15.4...PDI=16.7.....Sharpe: VFIAX=1.1...PDI=0.5
The numbers above + looking at the examples on PV proved that VFIAX gave PDI several knockouts to PDI. It has better performance, SD(volatility, much better Sharpe(risk-adjusted). BTW, The SP500 performance was so much better because it lost less than PDI in March 2020 but the rebound was much better too. Gov, The Fed, Politicians care a lot more about the SP500 than PDI and other CEFs.
Example 2: PDI vs VFIAX(SP500). Income (higher distributions) is a comfort, reliable, lower risk, make up other stuff. Same 3+5 year examples as above, but this time I added 5% withdrawals + you can see the generated income.
The results are similar, so let's look at 5 years (link). The results show that after 5 year starting with 1 million in each (PFI,VFIAX) and taking 5% withdrawals. VFIAX portfolio grew to 1.8 but PDI ended with much smaller portfolio of just 1.17 milion. PDI income was a lot higher but that didn't help at the end. But wait, Max. Drawdown for VFIAX was -19.6 while PDI=32%. This little exercise shows that leveraged CEFs are as risky as stocks, especially when you need them most.
Example 3: VWINX(40/60) vs VWELX (60/40) 1985-2011.(link). PV shows that...performance: VWELX made about 1.4% more annually BUT VWELX SD was 50% higher. If you younger, there is no dilemma, but if you are a logical retiree who look for a better risk-adjusted performance, you will select VWINX
Another point: expense ratio. You can easily find an SP500 funds with ER=0.03% while PDI ER=2.78. This means every year you start PDI has to make up 2.75% just to break even. Every year you start with one million Dollars, you will pay $3K to Vanguard but you will pay Pimco $27,800. How do you feel about it?
Another point: your rich uncle died and the executor send you 10 million dollar check. You can only select between 2 choices SPY or PDI, you can't sell for 30 years. You can only take a max of 4% annually. Just think how much more taxes you will pay if you invest in PDI.
Lastly, if PDI price goes down by 50%, the distributions double. Is this a good thing or a fuzzy math?
Again, total returns include all the distributions and the most critical indicator of success, regardless of the reasons. If you care about SD/risk then risk-adjusted performance is the only way to invest.
Sure, if I know that PDI TR will be 8% in the next 5 years while SPY is only 5%, I will select PDI, after all, I care about TR.
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Post by acksurf on Feb 6, 2022 14:01:52 GMT
CEF vs stock should be a mathematical, logical debate based on facts.
Claim: Moreover the world is full of fearful people who know nothing about the market, and yet need income in a low-interest rate world. If granny is raking in a steady 7 or 8% per year but withdrawing 4% -- it's not a stellar success .... but it's comforting and darn good enough......a reliable 6-7% long term, hopefully hedged against inflation, and to hell with the market.
FD Reality: Any investor can set up a reliable income using the SP500 (VFIAX, SWPPX, FXAIX). It takes about 2 minutes to set up a month sell order for a specific amount and date and let it run for years.
========== Claim: My feeling is if I hear one more time (making it one thousand and one), that risk-adjusted returns are what count, I'm gonna scream!...Especially when comparing a fixed income fund with a stock fund.
FD reality: the more I read about CEFs, the more I want to cry and punch my neighbor, after all, I use numbers to make my points.
========== Claim: Some Fidelity Forum posters, wealthy and some not, are 100% PIMCO FI CEFs. They spend the yield. They will make it to the end. It's all they need. They would never entertain going 60/40, with investments that may provide a "risk adjusted return" that is better. They make a strong case to themselves that stock markets are a huge gamble today.
FD reality: it's never CEF vs 60/40, it's CEFs vs stocks. These wealthy people miss on a huge performance compare to stocks since 2009. I know many wealthy people who own only stocks. In fact, very rich investors own stocks not CEFs.
========= Claim: I can count on one hand the number of investors I know who really consider risk-adjusted returns are the driving force. Investors comprehend "risk" relative to an investment and permanent losses.
FD reality: most of the retirees I know think that risk-adjusted returns is the most important aspect of investing, otherwise they would be in 100% stocks because we know stocks have higher SD but better performance over several decades.
========= Claim: I have the highest percentage "cash" ever in my portfolio this year. It may be my best risk-adjusted return this year.
FD reality: the above is your perception and trading acumen, and it worked nicely. Other traders and investors here or on other boards have done other things. My portfolio made more money than 50/50 and a lot more than PDI in the last 3 years + much lower SD. That doesn't prove the point. The discussion is about holding a position for 20+ years, no trading.
========= Let's prove using simple math.
Example 1: PDI vs VFIAX(SP500) for 3+5 years
Let's see performance in the last 3+5 years (link) + (link) 3 years performance: VFIAX=16%...PDI=5.9%........SD: VFIAX=17.4...PDI=20.7.....Sharpe: VFIAX=1.37...PDI=0.35 5 years performance: VFIAX=18.4...PDI=8.6%........SD: VFIAX=15.4...PDI=16.7.....Sharpe: VFIAX=1.1...PDI=0.5
The numbers above + looking at the examples on PV proved that VFIAX gave PDI several knockouts to PDI. It has better performance, SD(volatility, much better Sharpe(risk-adjusted).
Example 2: PDI vs VFIAX(SP500). Income (higher distributions) is a comfort, reliable, lower risk, make up other stuff. Same 3+5 year examples as above, but this time I added 5% withdrawals + you can see the generated income.
The results are similar, so let's look at 5 years (link). The results show that after 5 year starting with 1 million in each (PFI,VFIAX) and taking 5% withdrawals. VFIAX portfolio grew to 1.8 but PDI ended with much smaller portfolio of just 1.17 milion. PDI income was a lot higher but that didn't help at the end. But wait, Max. Drawdown for VFIAX was -19.6 while PDI=32%. This little exercise shows that leveraged CEFs are as risky as stocks, especially when you need them most.
Example 3: VWINX(40/60) vs VWELX (60/40) 1985-2011.(link). PV shows that...performance: VWELX made about 1.4% more annually BUT VWELX SD was 50% higher. If you younger, there is no dilemma, but if you are a logical retiree who look for a better risk-adjusted performance, you will select VWINX
Another point: expense ratio. You can easily find an SP500 funds with ER=0.03% while PDI ER=2.78. This means every year you start PDI has to make up 2.75% just to break even. Every year you start with one million Dollars, you will pay $3K to Vanguard but you will pay Pimco $27,800. How do you feel about it?
Another point: your rich uncle died and the executor send you a million dollar check. You can only select between 2 choices SPY or PDI, you can't sell for 30 years. You can only take a max of 4% annually. Just think how much more taxes you will pay if you invest in PDI.
Again, total returns include all the distributions and the most critical indicator of success, regardless of the reasons. If you care about SD/risk then risk-adjusted performance is the only way to invest.
Sure, if I know that PDI TR will be 8% in the next 5 years while SPY is only 5%, I will select PDI, after all, I care about TR. Completely disagree. My (albeit tiny) CEF allocation doesn't come from my stock allocation but from what would in the past come from a bond allocation. I have little in the way of traditional bonds and more in higher yielding stocks, cash and yes some CEFs.
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Post by mozart522 on Feb 6, 2022 14:30:35 GMT
CEF vs stock should be a mathematical, logical debate based on facts.
Claim: Moreover the world is full of fearful people who know nothing about the market, and yet need income in a low-interest rate world. If granny is raking in a steady 7 or 8% per year but withdrawing 4% -- it's not a stellar success .... but it's comforting and darn good enough......a reliable 6-7% long term, hopefully hedged against inflation, and to hell with the market.
FD Reality: Any investor can set up a reliable income using the SP500 (VFIAX, SWPPX, FXAIX). It takes about 2 minutes to set up a month sell order for a specific amount and date and let it run for years.
========== Claim: My feeling is if I hear one more time (making it one thousand and one), that risk-adjusted returns are what count, I'm gonna scream!...Especially when comparing a fixed income fund with a stock fund.
FD reality: the more I read about CEFs, the more I want to cry and punch my neighbor, after all, I use numbers to make my points.
========== Claim: Some Fidelity Forum posters, wealthy and some not, are 100% PIMCO FI CEFs. They spend the yield. They will make it to the end. It's all they need. They would never entertain going 60/40, with investments that may provide a "risk adjusted return" that is better. They make a strong case to themselves that stock markets are a huge gamble today.
FD reality: it's never CEF vs 60/40, it's CEFs vs stocks. These wealthy people miss on a huge performance compare to stocks since 2009. I know many wealthy people who own only stocks. In fact, very rich investors own stocks not CEFs.
========= Claim: I can count on one hand the number of investors I know who really consider risk-adjusted returns are the driving force. Investors comprehend "risk" relative to an investment and permanent losses.
FD reality: most of the retirees I know think that risk-adjusted returns is the most important aspect of investing, otherwise they would be in 100% stocks because we know stocks have higher SD but better performance over several decades.
========= Claim: I have the highest percentage "cash" ever in my portfolio this year. It may be my best risk-adjusted return this year.
FD reality: the above is your perception and trading acumen, and it worked nicely. Other traders and investors here or on other boards have done other things. My portfolio made more money than 50/50 and a lot more than PDI in the last 3 years + much lower SD. That doesn't prove the point. The discussion is about holding a position for 20+ years, no trading.
========= Let's prove using simple math.
Example 1: PDI vs VFIAX(SP500) for 3+5 years
Let's see performance in the last 3+5 years (link) + (link) 3 years performance: VFIAX=16%...PDI=5.9%........SD: VFIAX=17.4...PDI=20.7.....Sharpe: VFIAX=1.37...PDI=0.35 5 years performance: VFIAX=18.4...PDI=8.6%........SD: VFIAX=15.4...PDI=16.7.....Sharpe: VFIAX=1.1...PDI=0.5
The numbers above + looking at the examples on PV proved that VFIAX gave PDI several knockouts to PDI. It has better performance, SD(volatility, much better Sharpe(risk-adjusted).
Example 2: PDI vs VFIAX(SP500). Income (higher distributions) is a comfort, reliable, lower risk, make up other stuff. Same 3+5 year examples as above, but this time I added 5% withdrawals + you can see the generated income.
The results are similar, so let's look at 5 years (link). The results show that after 5 year starting with 1 million in each (PFI,VFIAX) and taking 5% withdrawals. VFIAX portfolio grew to 1.8 but PDI ended with much smaller portfolio of just 1.17 milion. PDI income was a lot higher but that didn't help at the end. But wait, Max. Drawdown for VFIAX was -19.6 while PDI=32%. This little exercise shows that leveraged CEFs are as risky as stocks, especially when you need them most.
Example 3: VWINX(40/60) vs VWELX (60/40) 1985-2011.(link). PV shows that...performance: VWELX made about 1.4% more annually BUT VWELX SD was 50% higher. If you younger, there is no dilemma, but if you are a logical retiree who look for a better risk-adjusted performance, you will select VWINX
Another point: expense ratio. You can easily find an SP500 funds with ER=0.03% while PDI ER=2.78. This means every year you start PDI has to make up 2.75% just to break even. Every year you start with one million Dollars, you will pay $3K to Vanguard but you will pay Pimco $27,800. How do you feel about it?
Another point: your rich uncle died and the executor send you a million dollar check. You can only select between 2 choices SPY or PDI, you can't sell for 30 years. You can only take a max of 4% annually. Just think how much more taxes you will pay if you invest in PDI.
Again, total returns include all the distributions and the most critical indicator of success, regardless of the reasons. If you care about SD/risk then risk-adjusted performance is the only way to invest.
Sure, if I know that PDI TR will be 8% in the next 5 years while SPY is only 5%, I will select PDI, after all, I care about TR. Completely disagree. My (albeit tiny) CEF allocation doesn't come from my stock allocation but from what would in the past come from a bond allocation. I have little in the way of traditional bonds and more in higher yielding stocks, cash and yes some CEFs. So you would consider an investment with a 20+ SD to be from your bond allocation? And a tiny allocation is not what was being discussed. Isn't a tiny allocation to anything, just an admission that you see the high risk which is more on point in this discussion?.
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Post by Deleted on Feb 6, 2022 14:55:41 GMT
CEF vs stock should be a mathematical, logical debate based on …
Completely disagree. My (albeit tiny) CEF allocation doesn't come from my stock allocation but from what would in the past come from a bond allocation. I have little in the way of traditional bonds and more in higher yielding stocks, cash and yes some CEFs. This brings up something I’ve been meaning to ask the experts here about. I also use CEFs as part of my bond allocation. Specifically, I exchanged $100 of bonds for $20 of PDO/PTY and $80 cash. The new yield exceeds what I was making previously. Assuming the bond fund had a duration of 5 years, the fund should decrease 5% with a 1% increase in rates; the CEFs would need to go down 25% for the same loss of principal. I also now have cash I can put to use. Could you point out the flaws in this strategy?
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Post by FD1000 on Feb 6, 2022 15:15:30 GMT
Sure, anybody can invest as they wish. I'm talking about risk-adjusted performance. Typical bonds can't be compared to leveraged CEF. CEFs risk/SD is similar to stocks.
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Post by mozart522 on Feb 6, 2022 16:41:28 GMT
Completely disagree. My (albeit tiny) CEF allocation doesn't come from my stock allocation but from what would in the past come from a bond allocation. I have little in the way of traditional bonds and more in higher yielding stocks, cash and yes some CEFs. This brings up something I’ve been meaning to ask the experts here about. I also use CEFs as part of my bond allocation. Specifically, I exchanged $100 of bonds for $20 of PDO/PTY and $80 cash. The new yield exceeds what I was making previously. Assuming the bond fund had a duration of 5 years, the fund should decrease 5% with a 1% increase in rates; the CEFs would need to go down 25% for the same loss of principal. I also now have cash I can put to use. Could you point out the flaws in this strategy? I'm no expert but what your are suggesting is sort of a "free lunch" strategy. You buy certain amount of a risky investment that has the same expected return as the total investment, in this case your bond allocation. The rest of the money is the free lunch. The only potential flaw would be how you choose to "put to use" the additional cash. Anything riskier than ST treasuries, and you begin to potentially eat your free lunch, as you now have more risk than in your original bond portfolio. The common example was to buy some percentage of small value funds and then put the extra cash into ST treasuries. But that was when treasuries were yielding something worthwhile. And note we are talking expected return. Your CEFs may not ever get their expected returns during your holding period, just like small value may go into a funk for many years.
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Post by FD1000 on Feb 6, 2022 18:10:44 GMT
I see the following as FREE LUNCH. Any time you get better performance with better risk attributes(SD, Max Draw, Sharpe, Sortino), it's free lunch. The 3 year performance of SPY vs PDI is a huge free lunch. Higher distributions style was probably a pretty good idea until 70-80s where great companies paid high yield. The tech revolution changed all that, because these companies had fast growth with low/no yield. Value, as a part of higher dist, worked in 2000-2009. From 2009 to 2022 it trailed by a lot. Who can forget several posters who invested in MLP, energy, and VALUE and experienced much lower portfolio performance. Around 2012-3 I have noticed explosion posts about CEFs. For a while it looked but then they started moving to goal post and finally in the last 3-5 years this style produced pretty low returns. Sure, if you are a good trader, you could better in CEFs, but a good trader would do better in stocks. And one day, higher distributions (Value, energy, CEFs) would be great again. Higher distributions/yield/income should never lead these decisions. Performance should always be the driver force and if you care about risk/SD, look for it too.
Higher-rated bonds have done poorly since early 2021, this would change one day. Could be this year or the next a few years. Every investor should know their goals and risk tolerance. CEFs are not a sub for higher-rated bonds unless risk/SD doesn't bother you. In this case you should examine all risky stuff, such as value stocks, CEFs, energy, commodities, international stocks. There is no magic in CEFs, they don't guarantee better performance or risk/SD, it's just another category and pay a special attention to their very high ER. I'm not against any category but it's only based on performance and/or risk attributes..
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Post by chang on Feb 10, 2022 23:13:44 GMT
Closed another 0.5% down today. Fortunately I am now 100% out of this steaming pile of doggy poo. Down another 0.75%. So glad I am completely out of all bonds with duration > 1 year. The “ballast” idea is dead.
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Post by Chahta on Feb 11, 2022 0:54:58 GMT
Closed another 0.5% down today. Fortunately I am now 100% out of this steaming pile of doggy poo. Down another 0.75%. So glad I am completely out of all bonds with duration > 1 year. The “ballast” idea is dead. Munis too?
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Post by chang on Feb 11, 2022 1:15:58 GMT
Oops — no, not munis. Rightly or wrongly (probably wrongly) I haven’t sold a dollar of munis.
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Post by FD1000 on Feb 23, 2022 15:19:40 GMT
LT saying: Don't fight the Fed. The Fed guaranteed us it will raise rates? The discussion is how many, is it 4-5-7 times?
So, where do you invest in bonds to make money?
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Post by Chahta on Feb 23, 2022 16:31:32 GMT
How much money are you talking about? RCTIX .40% and RPHIX .06% are treading water.
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Post by chang on Mar 15, 2022 6:41:37 GMT
Did DODIX just fall 0.8% and it wasn’t a distribution? If so… crikey!
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Post by alvinthechipmunk on Mar 15, 2022 7:56:56 GMT
PTIAX not much better today, 14th March, '22. Tomorrow, the monthly dividend is due. Today: down -0.74%.
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Post by Chahta on Mar 17, 2022 13:01:47 GMT
I think they are becoming a buy again.
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Post by alvinthechipmunk on Mar 20, 2022 1:41:45 GMT
becoming a BUY? What, munis?
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Post by Chahta on Mar 20, 2022 2:49:27 GMT
Basing my statement on how far most bond OEFs have fallen. Many reacted well to the Fed increase. My thought is if one plans to hold for long term they should be bought cheap. All types have dropped similarly.
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Post by FD1000 on Mar 20, 2022 4:16:21 GMT
PTIAX not much better today, 14th March, '22. Tomorrow, the monthly dividend is due. Today: down -0.74%. Hope doesn't make money. We are talking about over 3.5 months of just downtrend for PTIAX. HY Munies doing the same in the last 3 month...downtrend. Attachments:
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Post by oldskeet on Mar 20, 2022 7:22:01 GMT
Hi guys,
For me when asset values pull back being a buy and hold investor (that trades around the edges) I generally add to my bond fund positions because I buy fixed income funds for the income that they generate and not so much for capital appreciation.
I understand that traders are cut from a different cloth and will cut and run in quick fashion at the first signs of net asset value compression.
However, for me, when nav compression takes place in my fixed income sleeve (as well as my equity sleeves) I look at this as a buying opportunity. Why? Because, I can buy a higher yield (dividend income) for less money.
Funny, how different investors (and traders) have different perspectives and outlooks. But, there again, it is these different perspectives and outlooks that make the markets.
As equities have had a recent run during the past week it has thrown my portfolio a little light on the fixed income side. Because of this, I have been thinking of buying a touch in fixed income to maintain my fixed income allocation at it's lower threshold rebalance mark of 38%.
And, so it goes.
Peace
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Post by alvinthechipmunk on Mar 20, 2022 11:06:49 GMT
Smart cookie, oldskeet. Disciplined. Both tactical and strategic. Good on ya.
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Post by Chahta on Mar 21, 2022 0:04:05 GMT
oldskeet, not sure you will have to wait long to go back into balance. Many think this is a short term rally.
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