Scout Unconstrained Fund bearish bond bet - Too early?

mnzdedwards

Hi guys. I've been a holder of SUBYX since David's excellent profile. Being an unconstrained fund, I thought of SUBYX as a hedge against rising rates. But boy is it painful on days like today! -0.34%

It appears that SUBYX has a greater correlation to equities at this point and would not be a downside protector against a significant fall in equities (especially if bond yields go lower).

I'm thinking of swapping SUBYX for RNSIX. Any thoughts?

Mike_E

Ted

Dear mnzdedwards: (Barron's Copy & Paste) I'd make the switch Note those two words: “not constrained.” Why are they significant? Because they identify the fund as an unconstrained-style fund, a loosely defined bond-fund category that’s exploded in popularity lately after being marketed as a way to dodge interest-rate risk. As I wrote in my Barron’s cover story in October, unconstrained funds can be all over the map in terms of what they own, but what unites the category is the ability to eschew traditional bond index benchmarks, offering managers broad investing flexibility, and their strategies have tended toward shortening duration and lowering credit quality
Regards,
Ted
http://finance.yahoo.com/echarts?s=SUBYX+Interactive#symbol=subyx;range=2y;compare=rnsix;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

PRESSmUP

I have a substantial stake in SUBFX/SUBYX.....I use this as a parking spot for cash as a bucket 1 holding.

It is down 0.39% YTD.

Why did you buy this? Do you really want to make a move based on what happened today?

mnzdedwards

Hi PRESSmUP. It's not just a single day's return that I'm concerned about. SUBYX's portfolio is currently positioned to appreciate as bond yields rise. But if the market corrects (as it most certainly will and investors rush into treasuries and thus lowering interest rates), I'm concerned SUBYX might not provide protection since it's on the wrong side of a bet.

I think I've answered my own question. If I want to hedge against rising rates, then I should keep SUBYX. If I want to hedge against a falling stock market, I should buy a treasury fund.

Thanks for the feedback PRESSmUP.

Mike_E

scott

"If I want to hedge against rising rates, "

Which I would, but that's just me.

expatsp

Looking at M*, SUBFX doesn't seem to have much of a short position, though admittedly the portfolio there is from September 30. The fund looks like it's mostly short-term high yield and cash. Mike, how do you know that it's heavily short treasuries? I don't doubt you, I'm just curious where you got the info. Looking at the portfolio on M*, it looks pretty safe against any kind of correction, especially since it's holding all that cash. But I too am wondering if RSIVX is not a better bet for what I am looking for in a bond fund: slow and steady. My equities give me all the excitement I need.

PatShuff

SUBFX is flat over the trailing twelve months while two other positions MAINX RNSIX are down 4-6% excluding yield which was negligible for SUBFX.

http://finance.yahoo.com/q/bc?t=1y&s=SUBFX&l=on&z=l&q=l&c=MAINX+RNSIX&ql=1

As a diversifier in fixed income allocations it seems to fit as does RPHYX with a stable NAV .