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Post by rhythmmethod on Jun 9, 2021 22:43:07 GMT
Just checking in on FI. Folks were talking about her like a cheer leader with VD in a small town. Since I pretty much try to maintain a balanced PF I don't shift too much of my AA. All kidding aside, FI looks like it caught a tail wind. Am I mis-shapen? - rm
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Post by yogibearbull on Jun 9, 2021 22:47:06 GMT
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Post by rhythmmethod on Jun 9, 2021 22:50:38 GMT
I don't know if it will last, just like I didn't know that they were no longer cool. That's why a good manager and a balanced PF suit my temperament, and IQ.
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Post by chang on Jun 10, 2021 1:03:32 GMT
I am doubtful. Bonds are in a terrible position - low yields and high prices:
1. You are not getting paid for taking risk.
2. In order to get paid more (yields go up), prices need to fall (bad investment).
3. If prices appear to be going up, then that is even more worrisome: yields cannot fall forever, and the reaction to even a rumor of interest rate hikes will be sharp and painful (risk goes up!).
4. When bonds return so little, the relative importance of ER (for funds) becomes higher. When you pay a manager 0.5% on a bond fund yielding 1%, isn't there a problem? So I would argue that the cost of active management is a priori prohibitive.
Sure, there are opportunities for a short-term timer/trader (using ETFs - not actively managed OEFs, which is ludicrous). But people who can do that can probably do even better with CEFs or stocks. What's left for people who consider bonds as "FIXED INCOME"?
In my opinion, nothing is left but ultrashort bond funds. Everything else looks like a lose-lose proposition to me (for the B&Her). So yeah, bonds look cool to me, but cool like an ice cube 🧊 not like a cucumber 🥒.
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Post by chang on Jun 10, 2021 1:12:34 GMT
I probably should add that I have a more benevolent attitude toward municipal bonds, which have a number of unique features. LT/HY munis are a B&H for me (and they rocked today).
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Post by rhythmmethod on Jun 10, 2021 2:17:03 GMT
I probably should add that I have a more benevolent attitude toward municipal bonds, which have a number of unique features. LT/HY munis are a B&H for me (and they rocked today). Yeah, my HY munis did well also but we hold the same ones. My point, rather flippantly, is that there are so many variables that it’s hard to predict, at least for me. I’m holding my balanced, multi asset, ultra short and munis and hope for the best.
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Post by yogibearbull on Jun 10, 2021 23:00:30 GMT
I took advantage of the recent strength in munis to shift some from muni CEFs to muni OEFs. This even though muni OEFs show hugely overbought RSIs, but my purpose is to reduce volatility.
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Post by retiredat48 on Jun 11, 2021 0:26:36 GMT
I am doubtful. Bonds are in a terrible position - low yields and high prices: 1. You are not getting paid for taking risk. 2. In order to get paid more (yields go up), prices need to fall (bad investment). 3. If prices appear to be going up, then that is even more worrisome: yields cannot fall forever, and the reaction to even a rumor of interest rate hikes will be sharp and painful (risk goes up!). 4. When bonds return so little, the relative importance of ER (for funds) becomes higher. When you pay a manager 0.5% on a bond fund yielding 1%, isn't there a problem? So I would argue that the cost of active management is a priori prohibitive. Sure, there are opportunities for a short-term timer/trader (using ETFs - not actively managed OEFs, which is ludicrous). But people who can do that can probably do even better with CEFs or stocks. What's left for people who consider bonds as "FIXED INCOME"? In my opinion, nothing is left but ultrashort bond funds. Everything else looks like a lose-lose proposition to me (for the B&Her). So yeah, bonds look cool to me, but cool like an ice cube 🧊 not like a cucumber 🥒. Hmmm...why not: +1
Perhaps why, in the last two years, I have sold all of my standard-issue, vanilla bond funds of intermediate or longer term duration--own none. Am spending a lot of time on how to strategically reposition this money for the next five years. R48
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Post by rhythmmethod on Jun 11, 2021 0:55:54 GMT
I am doubtful. Bonds are in a terrible position - low yields and high prices: 1. You are not getting paid for taking risk. 2. In order to get paid more (yields go up), prices need to fall (bad investment). 3. If prices appear to be going up, then that is even more worrisome: yields cannot fall forever, and the reaction to even a rumor of interest rate hikes will be sharp and painful (risk goes up!). 4. When bonds return so little, the relative importance of ER (for funds) becomes higher. When you pay a manager 0.5% on a bond fund yielding 1%, isn't there a problem? So I would argue that the cost of active management is a priori prohibitive. Sure, there are opportunities for a short-term timer/trader (using ETFs - not actively managed OEFs, which is ludicrous). But people who can do that can probably do even better with CEFs or stocks. What's left for people who consider bonds as "FIXED INCOME"? In my opinion, nothing is left but ultrashort bond funds. Everything else looks like a lose-lose proposition to me (for the B&Her). So yeah, bonds look cool to me, but cool like an ice cube 🧊 not like a cucumber 🥒. Hmmm...why not: +1
Perhaps why, in the last two years, I have sold all of my standard-issue, vanilla bond funds of intermediate or longer term duration--own none. Am spending a lot of time on how to strategically reposition this money for the next five years. R48 Sounds good. I hope you’ll share the results of your research time! Thanks!
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Post by chang on Jun 11, 2021 1:10:23 GMT
I took advantage of the recent strength in munis to shift some from muni CEFs to muni OEFs. This even though muni OEFs show hugely overbought RSIs, but my purpose is to reduce volatility. What is RSI? Kudos to you for making money on muni CEFs. After the Whitney bottom I owned as many as 6 muni CEFs and it was like shooting fish in a barrel. I sold them all off as the discounts turned to premia and the UNII evaporated. I never really regarded CEFs as "sleep easy" holdings. I don't see myself ever getting back into CEFs, but I did have a good experience with them.
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Post by chang on Jun 11, 2021 1:23:14 GMT
retiredat48 What's your opinion about VWEAX? Yield is 4.47% (TTM) / 3.13% (30d SEC), with a duration of 3.8 years. While many "total bond" funds are yielding well under what a decent LV equity fund pays, VWEAX is yielding quite a bit more than you'd get from a VEIRX or SCHD..... although you could get 3.85% from SPHD. I've owned VWEAX for quite a while. It is not a popular fund — criticized for a deteriorating NAV, for a risk-adjusted return inferior to many MS funds or even Wellesley. But it hasn't done me any harm (although one might ask how much good it has done, compared to the alternatives). It provides very cheap HYB exposure. Despite the common view that HYB is closely correlated to US equity, I have noticed that on many a day when the market takes a big stumble, VWEAX manages to close flat. Anybody want to argue that I should replace it with more UST bond (and lose the yield) or HY equity (and take more equity risk)? Willing to listen.
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Post by yogibearbull on Jun 11, 2021 1:24:27 GMT
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Post by Chahta on Jun 11, 2021 2:00:36 GMT
IMHO bond funds are there to provide income. Take the income and the NAVs go up/down. Most good funds with long records have NAVs that oscillate roughly in a range. To expect much more out of them is not reasonable. They just don’t grow like equities.
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Post by anitya on Jun 11, 2021 7:05:32 GMT
My MUNI CEFs are in taxable accounts. Bought in March 2020, they are up 35%. They actually fell 10% the day after I bought. They show an M* Z score of a bit over 2. A bit Rich. But if I sell, I will pay 30+% tax on the gain. Do I expect them to lose 10% in value relative to the OEFs is the question I have to answer.
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Post by yogibearbull on Jun 11, 2021 12:10:20 GMT
My MUNI CEFs are in taxable accounts. Bought in March 2020, they are up 35%. They actually fell 10% the day after I bought. They show an M* Z score of a bit over 2. A bit Rich. But if I sell, I will pay 30+% tax on the gain. Do I expect them to lose 10% in value relative to the OEFs is the question I have to answer. Well, that is always a tough call on taxes. I was thinking of reducing muni CEFs in early-May, but before I could act, a minor muni selloff developed. So now, with the rebound, I carried out the muni CEF reduction. I know that I will have to pay some estimated taxes on gains . As I mentioned, proceeds are going into overbought muni OEFs but those have less volatility.
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Post by rhythmmethod on Jun 11, 2021 12:54:21 GMT
FWIW - The PIMIX I bot last April is up >14%. That does NOT include the thousands of $ I didn't reinvest but chose to buy mostly LCG. It also doesn't include some that I trimmed to add to any number of investments, now all up. IMO, FI is a part of my strategic allocation that I can deploy tactically, when desired. Disclosure - I'm holding no vanilla intermediate taxable bonds except those buried in VWIAX, VGWAX and to a lesser degree FMSDX. My experiment with EDV is not going great, but neither was my experiment with XLE 15 months ago. XLE served it's purpose and I bet EDV will one day too.
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Post by anitya on Jun 11, 2021 13:49:44 GMT
rhythmmethod , I bought back PIMIX around March 25 and again on April 7, 2020 but I sold first week of 2021. My main beef was it is too large and not nimble. But I have to admire its performance for its size. Interestingly, PIMCO house view as reflected in their products is inflation is transitory and rates are not going to run away. This view is also reflected in their CEF swaps’ and NAV performance. May be they will turn out to be correct against the drum beat by most investment strategists’ comments. The 10 yr rate retreat makes them look good but I suspect it is currently overshooting to the downside. All you need now is an equity market correction for PIMCO rate bet to look really good.
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Post by rhythmmethod on Jun 11, 2021 14:00:46 GMT
rhythmmethod , I bought back PIMIX around March 25 and again on April 7, 2020 but I sold first week of 2021. My main beef was it is too large and not nimble. Interestingly, PIMCO house view as reflected in their products is inflation is transitory and rates are not going to run away. This view is also reflected in their CEF swaps’ and NAV performance. May be they will turn out to be correct against the drum beat by most participants. I agree basically. I bot PIMIX just -- because --. It is only a moderate FI fund, and a black box as chang, would say. I'm just using it as a proxy for my FI allocation.
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Post by anitya on Jun 11, 2021 14:16:07 GMT
rhythmmethod , I bought back PIMIX around March 25 and again on April 7, 2020 but I sold first week of 2021. My main beef was it is too large and not nimble. Interestingly, PIMCO house view as reflected in their products is inflation is transitory and rates are not going to run away. This view is also reflected in their CEF swaps’ and NAV performance. May be they will turn out to be correct against the drum beat by most participants. I agree basically. I bot PIMIX just -- because --. It is only a moderate FI fund, and a black box as chang , would say. I'm just using it as a proxy for my FI allocation. Everything is way too pricey, even the zombie companies. May be it is time to up in quality for both fixed income and equities or May be one should over allocate to equities with high quality and hold fixed income in cash like e.g., VUSFX. I admire you guys for being able to always make moves.
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Post by anitya on Jun 12, 2021 8:17:36 GMT
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Post by fred495 on Jun 12, 2021 14:20:35 GMT
Thanks, anitya, for the link to the Schwab fixed income outlook.
If nothing else, it will motivate me to take a closer look at CLMAX.
Good luck,
Fred
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Post by rhythmmethod on Jun 12, 2021 16:42:10 GMT
Thanks anitya, It seems that the article is largely agreeing with chang. My actionable take-away is to have managed FI as part of balanced multi-sector funds, possibly lighten up on PIMIX (where would I put it?) and continue to build cash. I'm more comfortable with active management of various durations and cash which is 0 duration. I may move my smaller holding of BSV to an ultra-short but it wouldn't move the needle much I like chang, holding VWEAX (I used to hold it) It offers SOME balance against equity and decent yield. I wouldn't buy it myself now, however. I'm more comfortable letting the managers of FMSDX decide where to go. Still have a feeling this too may pass...
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Post by fred495 on Jun 13, 2021 21:31:42 GMT
Thanks, anitya, for the link to the Schwab fixed income outlook. If nothing else, it will motivate me to take a closer look at CLMAX. Good luck, Fred I have some cash sitting on the sideline looking for a home. CLMAX has been on my watch list for a while as a fund that actively, and mostly successfully, tries to manage interest rate risk. If, as the Schwab outlook states, 10-year Treasury yields may rise to the 2.0% to 2.5% level, I expect this fund to be able to navigate the expected rate rise as well as it did in the recent past when rates rose. I don't know of any other fund that has managed interest rate volatility as well and as consistently as CLMAX. Over the past five years, annual total returns have fluctuated nicely within a range of 5.2 and 8.9%, and YTD it's up 6.1%. In the Nontraditional Bond category, M* determined that the fund's 3-year and 5-year total returns rank in the top 1%. In the meantime, I hold the following three dedicated bond funds in my portfolio: NVHAX, RCTIX and TSIIX, with very pleasing YTD total returns of 5.9%, 3.6% and 1.8%, respectively. So far, so good. Fred
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Post by Deleted on Jun 13, 2021 22:33:40 GMT
www.investopedia.com/terms/c/convexity.asp "Most mortgage-backed securities (MBS) will have negative convexity because their yield is typically higher than traditional bonds. As a result, it would take a significant rise in yields to make an existing holder of an MBS to have a lower yield, or less attractive, than the current market." Principle may apply to other types of high(er) yielding bonds.
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Post by Chahta on Jun 14, 2021 0:39:13 GMT
rhythmmethod , I bought back PIMIX around March 25 and again on April 7, 2020 but I sold first week of 2021. My main beef was it is too large and not nimble. Interestingly, PIMCO house view as reflected in their products is inflation is transitory and rates are not going to run away. This view is also reflected in their CEF swaps’ and NAV performance. May be they will turn out to be correct against the drum beat by most participants. I agree basically. I bot PIMIX just -- because --. It is only a moderate FI fund, and a black box as chang, would say. I'm just using it as a proxy for my FI allocation. As primarily a buy and holder why sell PIMIX? You bought right and assume you reinvest the yield you will own a great position for income once you can’t thump the Tom Toms any longer. Use it to feed equities on drops. What else would you buy in the future?
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Post by yogibearbull on Jun 14, 2021 1:09:58 GMT
@haven , the MBS trade at a spread over Treasuries because of their negative-convexity. It is a question of whether the spread is enough for the risk.
Basically, when mortgage rates rise, homeowners delay re-fi, that reduces the principal payments, and mortgage durations rises. Would you like to own higher duration bonds when rates rise? No. But MBS holders get compensated for this and the spreads work as shock absorbers if the rates don't rise too much. On the other hand, mortgage IOs do quite well - the only bond derivatives that benefits from rising rates; speculative bond funds may own IOs but it is not easy to determine the details. Mortgage POs act like MBS.
When mortgage rates fall, homeowners rush to re-fi, that increases principal payments, and mortgage durations fall. So, the MBS then don't have as much kick as Treasuries and Zeros. Mortgage IOs get crushed - some to 0, never to rebound.
So, negative-convexity of MBS leads to more downside when rates rise, but less upside when rates fall. But MBS holders get compensated for this undesirable feature by the MBS spreads.
But the above doesn't apply to HY bonds that have other factors driving their prices.
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Post by chang on Jun 14, 2021 1:11:13 GMT
IMHO bond funds are there to provide income. Take the income and the NAVs go up/down. Most good funds with long records have NAVs that oscillate roughly in a range. To expect much more out of them is not reasonable. They just don’t grow like equities. I need to find a ProBoards app that will allow me to frame something and hang it on the wall. 🖼 Couldn't agree more. Bonds are loans. They may be mispriced from time to time, and if you're very smart and very fast, you might be able to make an extra buck trading them. But there's no inherent growth. How do people sleep at night owning a bond fund that returns 5% but whose underlying holdings yield 2%? That's a time bomb. (Never mind the fact that the fund is also charging you 1% or more.) A bond fund that has just imploded and crashed might interest me. (Many years ago, when nobody knew who Jeff Gundlach was, I noticed TGLMX's NAV had gone down in a straight line for three years. I bought it as a reversion-to-the-mean experiment, and it paid off nicely.) But a bond fund that's returned twice its yield for the past five years? Not in a million years. If I wanted that kind of risk I'd try skydiving.
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Post by rhythmmethod on Jun 14, 2021 2:17:02 GMT
I agree basically. I bot PIMIX just -- because --. It is only a moderate FI fund, and a black box as chang , would say. I'm just using it as a proxy for my FI allocation. As primarily a buy and holder why sell PIMIX? You bought right and assume you reinvest the yield you will own a great position for income once you can’t thump the Tom Toms any longer. Use it to feed equities on drops. What else would you buy in the future? Chahta, I think you're right. Too often amateur investors think they are smarter than folks who live in this world 19 hours a day, if not longer. PIMCO managers didn't get hired because they are index chasers. Let them do their gigs so I can CONTINUE to thump the Toms!
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Post by chang on Jun 21, 2021 7:12:48 GMT
retiredat48 What's your opinion about VWEAX? Yield is 4.47% (TTM) / 3.13% (30d SEC), with a duration of 3.8 years. While many "total bond" funds are yielding well under what a decent LV equity fund pays, VWEAX is yielding quite a bit more than you'd get from a VEIRX or SCHD..... although you could get 3.85% from SPHD. I've owned VWEAX for quite a while. It is not a popular fund — criticized for a deteriorating NAV, for a risk-adjusted return inferior to many MS funds or even Wellesley. But it hasn't done me any harm (although one might ask how much good it has done, compared to the alternatives). It provides very cheap HYB exposure. Despite the common view that HYB is closely correlated to US equity, I have noticed that on many a day when the market takes a big stumble, VWEAX manages to close flat. Anybody want to argue that I should replace it with more UST bond (and lose the yield) or HY equity (and take more equity risk)? Willing to listen. BUMP for retiredat48 . I think you missed this. I know your thoughts about IG/IT bonds, and I sold VBILX/BIV/PIGIX last year just after you dumped BCOIX, and I owe you for that good advice. However .... well, I won't repeat what is written above. Thoughts? Edit: Its 1.87% YTD return isn't anything to celebrate, but neither is PIMIX's 1.47% return, powered by the Pimco Brain Trust.
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Post by rhythmmethod on Jun 21, 2021 14:04:56 GMT
retiredat48 What's your opinion about VWEAX? Yield is 4.47% (TTM) / 3.13% (30d SEC), with a duration of 3.8 years. While many "total bond" funds are yielding well under what a decent LV equity fund pays, VWEAX is yielding quite a bit more than you'd get from a VEIRX or SCHD..... although you could get 3.85% from SPHD. I've owned VWEAX for quite a while. It is not a popular fund — criticized for a deteriorating NAV, for a risk-adjusted return inferior to many MS funds or even Wellesley. But it hasn't done me any harm (although one might ask how much good it has done, compared to the alternatives). It provides very cheap HYB exposure. Despite the common view that HYB is closely correlated to US equity, I have noticed that on many a day when the market takes a big stumble, VWEAX manages to close flat. Anybody want to argue that I should replace it with more UST bond (and lose the yield) or HY equity (and take more equity risk)? Willing to listen. BUMP for retiredat48 . I think you missed this. I know your thoughts about IG/IT bonds, and I sold VBILX/BIV/PIGIX last year just after you dumped BCOIX, and I owe you for that good advice. However .... well, I won't repeat what is written above. Thoughts? Edit: Its 1.87% YTD return isn't anything to celebrate, but neither is PIMIX's 1.47% return, powered by the Pimco Brain Trust. Obviously not R48. It seems to me like you have adapted your bond positions to one of a well managed proportion of FI to equity. If you are still holding VWIAX, VGWAX you are getting some trad. Int term corp. FI (if you believe the auto balancing adds value as I do) that is well placed. You've already moved your previous Int. term to ultra short and added VWEAX. I'm choosing just to let PIMIX make those decisions for me. That's not a better choice just my take. I think your reasoning is sound based on your preferences and outlook. I had a great run with VWEAX but am no longer holding it. JMO.
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