FYI: The Oakmark manager on what attracted him to financials, plus the benefits of bringing a private-equity perspective to public-equity investing
Regards,
Ted
http://www.morningstar.com/cover/videocenter.aspx?id=666855

I would be cautious about owning core bond funds when we are in a period of rising interest rates. Flat-to-lower rates are ideal for core bonds, but when times are less sure, hiring experienced, unconstrained bond managers seems to make sense.

I have no idea what will happen to interest rates and the bond market, whether we will get Bill Gross' "new neutral" of a 2% Federal Funds rate or what the Fed thinks will be a 3.75% neutral policy rate by the end of 2017....and no idea what will happen to the US and world economies
People like David Swensen who runs the Yale endowment and wrote the book Unconventional Success, A Fundamental Approach to Personal Investment, strongly believe that we should only hold the highest quality bonds, Treasuries (both nominal and TIPS). Larry Swedroe also recommends only ultra high quality bonds. Swensen's reasoning is that bonds should play a very specific role in your portfolio, that of diversifying equity risk, especially for when equities go down. Take a look at how Treasuries performed in 2008 versus junk bonds, bank loans, and almost all bonds besides Treasuries.
The unconstrained bond funds generally have reduced average maturities, reduced duration. In many cases very significantly so. In exchange for the reduced interest rate risk, you generally get a very substantially increased credit risk. A significantly reduced quality of the bonds.
You mentioned great managers above, who manage great funds.
If the economy continues to recover, unemployment continues to decrease and eventually wages rise, etc, I'm sure the unconstrained bond funds in aggregate will do much better than the total bond market index funds like BND and AGG. And far better than Treasury bond funds. Taking credit risk instead of interest rate risk would be a good move if that plays out. But in the event that the economy and the stock market do poorly, the Treasury bond funds and total bond market funds should outperform the unconstrained funds in aggregate. This can be seen clearly in days like today, and other recent days when the stock market has done badly. Treasuries have done very well, and the total bond market funds have done fine also. They have diversified the portfolio just at the right time, when stocks did badly. Unconstrained bond funds, junk bond funds and lower quality bond funds have not diversified the portfolio that well at these times.
That's why Swensen and Swedroe only recommend the highest quality bonds, for portfolio diversification in the event that stocks or the economy do badly. Sort of as an insurance policy.
However, I can certainly see the great value in giving fixed income money to the managers named above and letting them invest it in an "unconstrained" manner, as they see best. JMO.

Probably not a bad sector to invest in. My two growth funds each have over 12% allocated to health stocks. One has to be careful not to get overweight in this sector.
PS; SPY or the SP500 index has 14.46% in the healthcare sector per M*

Seems like the long anticipated consolidation may be upon us. While the Dow is down less than 3 percent from its record highs, the NYSE Composite is down 5 percent. Other measures are even worse: The Russell 2000 small-cap index is down nearly 11 percent from its high.
If this keeps up for another week or so, I may let loose of some dry powder.

FYI: Disappointing Data Out of Germany, IMF’s Global Outlook Cut Raise Concerns.
Regards,
Ted
http://online.wsj.com/articles/u-s-stock-futures-inch-lower-following-europes-lead-1412684528#printMode
Markets At A Glance: http://markets.wsj.com/us

http://www.wkrb13.com/markets/387025/utilities-spdr-etf-short-interest-up-7-9-in-september-xlu/
http://www.fundweb.co.uk/news-and-analysis/new-launches/ishares-add-four-smart-beta-etfs-to-global-range/2014934.article
http://www.watchlistnews.com/ishares-msci-emerging-markets-indx-etf-sees-large-growth-in-short-interest-eem/122629/
stop following smart $$
http://www.cnbc.com/id/102057294
http://www.nasdaq.com/article/3-commodity-country-etfs-to-watch-on-us-dollar-strength-etf-news-and-commentary-cm398609
em read
http://www.bloomberg.com/news/2014-10-07/etf-bulls-fuel-biggest-inflow-in-emerging-markets.html

FYI: Valuations across most asset classes are at the highest levels they have ever been, according to AQR.
Stocks and bonds, particularly in the US, are in the top 85th percentile of historic levels, said AQR founding principal Cliff Asness at a briefing in London on Thursday. He also warned: “I don’t know of any large liquid asset class that’s not expensive.”
Regards,
Ted
http://www.ai-cio.com/print.aspx?id=2147489788

I would be cautious about owning core bond funds when we are in a period of rising interest rates. Flat-to-lower rates are ideal for core bonds, ... Then again, the definition of what a core bond fund is. VBMFX, for example, has not lived through a period of rising rates. It has been stellar in the past, but none of us knows what will happen.

Bob, I think you might be a bit too literal here. While John (and jerry) referred to "core bond", they (or at least John) were speaking in terms of their portfolio (i.e. their "main" or "anchor" holding), and not literally in terms of the type of fund ("core bond fund").
ACCNX is a core plus fund - it can hold junk bonds and vary the portfolio attributes considerably. According to M*, it went big into junk this year, now sporting an average credit rating of BB. Further, nearly half its bonds are securitized (generally MBS) vs. a quarter for its typical peer, placing it about midway between DLTNX and VBMFX.
While I'm not necessarily advocating ACCNX (don't know enough about it), I do think that core plus funds (with the right managers) can serve one well even in this environment.

Duration is one way to measure potential risk, with this fund having a probability of losing 5.6% of its value for every 1% increase in interest rates.

This brings us to another point, and one which makes me less sanguine about funds that tilt toward MBSs.
A duration of 5.6 years means that if interest rates go up by a basis point, then the portfolio may expect to lose 5.6 basis points. But the next basis point in rate change will (usually) bring a lesser shift in NAV. That's because the price/yield curve is concave up (like a y=1/x curve) - equivalently, that it has positive convexity, or its second derivative is positive. So the further you go out on the curve (the higher rates go), the shallower the slope, and the less the price changes for each additional basis point of interest.
But MBSs are different. They can even have negative convexity, meaning that the higher rates go, the faster the NAV changes. MBSs tend to be good in a slowly changing interest rate environment (as we seem to have now), but can misbehave when rates change quickly.
Just another reason why choice of managers is important, and why even core plus bond funds have a lot flexibility that they can use to good advantage or to hang themselves.

FYI: Vanguard Group’s chief executive, F. William McNabb III, runs the largest mutual-fund company in the U.S.—just how large was highlighted last month, when the firm said it had surpassed $3 trillion in assets under management.
Regards,
Ted
http://online.wsj.com/articles/how-vanguard-hit-3-trillion-1412539983

If you are going to own actively-managed funds, it would seem to me that concentrated portfolios and investment flexibility make a lot of sense. For example, why would I pay for active management in a fund that has 200+ holdings and is essentially a closet index fund?
On the other hand, owning a mix of 5-6 'dynamic' funds, like FPA Crescent, Oakmark Equity & Income, Price Capital Appreciation, Thornburg Income Builder, BlackRock Global Allocation, etc. over the last 20 years would have provided investors with better long-term returns than the S&P 500 and much less volatility. So there is more than one way to look at this.

I would be cautious about owning core bond funds when we are in a period of rising interest rates. Flat-to-lower rates are ideal for core bonds, but when times are less sure, hiring experienced, unconstrained bond managers seems to make sense. Even in times when core bonds should shine, some unconstrained managers out-perform. Consider Carl Kaufman, Dan Fuss/Elaine Stokes/Matt Eagon, Kathleen Gaffney, Jason Brady, and others. This does not mean unconstrained funds won't have a bad year along the way. Most investors have never experienced a long period of rising interest rates, and will find out the hard way that some core funds (and some unconstrained funds, too) will be sorely tested in the years ahead. Then again, the definition of what a core bond fund is. VBMFX, for example, has not lived through a period of rising rates. It has been stellar in the past, but none of us knows what will happen. Duration is one way to measure potential risk, with this fund having a probability of losing 5.6% of its value for every 1% increase in interest rates. If that is something one can live with, ok. But I would much rather reduce overall risk by owning a group of actively-managed, non-core funds. Different strokes for different folks.

FYI: Now that rising interest rates are looking increasingly likely for 2015, now is the time to start structuring your portfolio accordingly to maximize returns and minimize losses. Even if the Federal Reserve doesn’t start monetary tightening by raising borrowing costs well into next year, it is wise to begin making your moves before the Fed makes theirs.
Regards,
Ted
http://investorplace.com/2014/10/best-funds-worst-funds-rising-interest-rates/print

I think at least 50% of ones bond holdings should be indexed to core holdings like Vanguard total bond Once that is taken care of the issue is how you should invest because the bond market looks challenging. I see two possibilities First consider deciding how much to invest in high yield , international bonds, emerging markets , short term bonds etc. The trouble with this is a multiplicity of funds which makes it hard to rebalance and monitor but also your allocation will be based on your own knowledge which might or might not be better than Gundlach, Gross, Fuss etc.
A reasonable alternative is to pick one of the Gurus for the 50% going to strategic. Which one? : I would go with the smallest fund you can fund headed by a manager you respect.You could also use expense ratio as a major criteria,

Mf take a summer break?
http://www.denverpost.com/business/ci_26660256/third-quarter-review-mutual-funds-take-summer-break?source=rss

http://online.barrons.com/news/articles/SB51517841841143733463604580184431505935738?mod=djemb_mag_h
sorry if this is a repost
https://www.google.com/?gws_rd=ssl#q=Fidelity’s+Bright+Stars
when bondholders sell who will buy
http://www.northjersey.com/news/business/when-bondholders-sell-who-will-buy-1.1102690

IMHO, target date funds are one of the most misunderstood/misused categories of funds around. Their fundamental conceit is that they manage the bulk of your portfolio for you, based on "typical" progression through time. Though one would likely set aside funds for specific future purchases (e.g. that "trip around the world" you've always wanted to take), most of one's holdings should be in the target fund.
Doing otherwise defeats the purpose of the fund - to deal with asset allocation as "time marches on". If you don't like a fund's flight path, don't mix and match to get your own - you'll only have to monitor and tweak it as each fund adjusts at a different rate. Rather than simplifying the task of managing your portfolio, you can wind up complicating it.
TRP recognizes that not all glide paths, or people's needs, are created equal. So it offers two separate families of target date funds, Retirement Funds (with a higher percentage in equity), and Target Retirement Funds.
CB is asking for target date tax-managed funds, not asset allocation tax-managed funds (of which VTMFX - Vanguard Tax Managed Balanced Fund is another example). With respect to USBLX, it appears to have a unique approach to fixing its stock/bond ratio. While it happens to be 50/50 now, I expect it to tilt toward stock as interest rates rise. This is because it is supposed to generate at least half its income as tax-free income. As the income generated from tax-free bonds increases (due to rate increases) it will have the flexibility to allocate a greater percentage of the portfolio to equity.
Since I don't use target date funds (I feel I can deal with my own asset allocation), I'm not really looking for a target date tax-managed fund. The suggestion that holds the most appeal for me is the managed payout fund. That's an attempt by fund companies to offer something between an annuity (where you pay up front for a guaranteed stream of income) and funds where you're on your own in managing your income stream. I'd like to see a lot more experience with these funds before buying one, but I think it's an interesting approach.

FYI: Here Are Some Areas of the Bond Market That Experts Say Have a Chance of Prospering.
Regards,
Ted
http://online.wsj.com/articles/how-to-buy-bonds-in-a-rising-rate-world-1412540437?ru=yahoo?mod=yahoo_itp

From my wild side ... as I am no expert!
For me stocks, in general, are not cheap by any means ... however, when compared to bonds, in general, they seem like a bargain by my thinking.
For me, I have been lately buying based upon the following rational …
I anticipate full year 2015 earnings on a TTM basis for the S&P 500 Index will be somewhere around the $120 range. If one is willing to pay $16.00 for a dollars worth of prospective earnings at the anticipated earnings of $120 (share) then this puts a value on the Index somewhere around 1920. With this stocks are still trading, by my thinking and measure, at a slight premium even by looking out to their 2015 prospective earnings at $120.00 range.
Oh well, I guess I over paid when I just recently bought in the 1960 range.
Sometime investors, me included, just get carried away with what they are willing to pay for an anticipated reasonable return.
Old_Skeet

Sorry folks, but the government has this in the bag. Simply no way out. They tried, they lost. Best just get on with it. Cant win 'em all.
I would rather, berkowitz focus on his next 10 bagger. In fact, if he incessantly focuses on this loss is when i would consider selling fairx. Buy the manager they say, and ni-ot the fund. Well, a distracted manager we dont want.

Quote from B. Ritholtz piece linked by Ted here.
Everyone is wrong in this field (investing), and quite frequently. I find it helpful to think of investing and trading as more akin to being a hitter in Major League Baseball than being the captain of an oil tanker. You can bat .300 and be thought of as a strong player. Hit .350 and you are an all-star; break .400 and you are one of the all-time greats.
In finance, your job isn't to bat 1.000, but rather to manage those times when you don’t get a hit. How you handle those incidents when you are wrong will have enormous impact not only on your on-base average, but on your win-loss record. Understanding your own errors and acknowledging them is an extremely important part of this process. It is why I do my mea culpas in public every year.
There is a fine art to being wrong, one that all investors should master. As we have written before, however, those who are never wrong find disaster in the markets. Avoid these people and their money-losing philosophy at all costs.