Howdy,
Again, a thank you to all who post the links and also start and participate in the many fine commentaries woven into the message threads.
For those who don't know; I ramble away about this and that, at least once each week.
NOTE: For those who visit MFO, this portfolio is designed for retirement, capital preservation and to stay ahead of inflation creep; if and when it returns. This is not a buy and hold portfolio, and is subject to change on any given day; based upon perceptions of market directions. All assets in this portfolio are in tax-sheltered accounts; and any fund distributions are reinvested in the funds. Gains or losses are computed from actual account values.
While looking around..... Apparently, this house in reality, is running a market neutral fund.
I jabbered enough about my market perspective and the challenges in the PRE funds boat note on the 30th; this section, this week will be about the "what to do now" aspect of our portfolio; if indeed any actions are required. A first note that M* indicates that the portfolio has an overall yield of 4.27%. This write generally reflects thoughts with our bond holdings, being the biggest chuck of our money; but must be countered with the actions of the equity holdings and forward directions, and in particular, our high yield/income bond funds with their more related linkage to actions of the equity cousins. A non-scientific look at HY bonds vs equity actions since August 1, shows that for every 1% decline in a broad U.S. equity index, one would find about a 1/3% price decline in the HY area. This changed this past Friday, Sept 30; when HY price declines just about matched the decline of pricing in the broad equity area; and finally pushed our HY funds to mostly negatives for YTD. 'Course this action has caused yields to increase to higher and tempting levels; but at the cost of lost NAV. A few considerations of cause and effect in the next 6-12 months; as I still feel that the complex nature of "fixes" for the U.S. and Europe will remain entangled by and with political and legal (in the case of Europe) problems with the likely overhang of whether any "fixes" or decisions are credible and/or proper to the point of being real fixes:
1. The last quarter of the year for the fund managers is here and now. Some equity fund mgrs are in the "rock and hard place" zone, somewhat locked in place by the prospectus. Some bond funds are also similarly stuck. So, as usual; one must decide the who, what and where of matching a fund type to what one feels may be the market actions of the next 6-12 months. This is where the "flex" (in and out of a sector, without having to wait until the end of the trading day) of using an etf fund is of value; and no less, the ability via prospectus and finely tuned manager(s) decisions for a traditional mutual fund.
2. Pension funds: These folks will always maintain a core bond postion of some flavor or another. Based upon their internal forecasts for forward equity actions; and their need to generate cash flow, I anticipate accelerated bond yield chasing, i.e.; reworking and re-allocation of their bond sectors. This may bode well for support in the HY and other bond sectors.
3. Mutual funds: The same thinking applies to some bond funds. The "late to the party" crowd are moving more monies to U.S. bond issues.....Pimco, TCW and others. I suppose they have become believers to the serious problems. I sure don't know how Mr. Gross and co. missed this move, being Pimco gave birth to the "new normal".
4. The continued strength of the U.S. dollar; albeit, perhaps only for the next 6-12 months does indeed affect values of funds. If and when this does flip downward again, one's dollar will buy more of whatever that is not denominated in $US; if you catch the near top, before the down move.
So, what to do? Monday will tell this house more; but we may sell down some percentage (25%) of HY) and move the monies to a more flexible bond fund to allow for the decisions of management among what type of bonds to hold. We have no reason to "whine" about our HY/HI holdings, as these have been held since May/June of 2009 and have paid us well. 'Course this has not worked very well with having Pimco manage our holdings in PTTRX; and sadly, this is the only bond fund available in one retirement plan. So, we are stuck with this for now. Perhaps strange to some, is why we would hold FSAGX in such an economic environment. Our house will place this holding in line with the need to have insurance on the house and cars. The money is there for some protection that may never be needed; but may be foolish to "not" have. As to our current equity holdings, well; a real head scratcher with these, as our percentage is not very large, but continued down moves of these will still "nickel and dime" our losses. Fido Select Auto, Fido commodity holdings and CAMAX are the only real big dogs, YTD. Auto is in play as to some of the companies held that support select areas (Auto Zone/related) as many folks are going to fix and not buy good used or new vehicles. We are also "betting" on earnings of auto companies with sales in the asian markets. Fido commodities fund is a tough one, too. We still feel that the equity holdings here are being beat up with the rest of the equity markets, but not for any real and proper reason. Yes, some of the holdings are related to real demands in some sectors....copper, etc.; which have real uses in growing economies; but there is a "real" base of use and need for the energy and agriculture sectors of this fund.
I thought this would be a more clear cut and easier write, that this house was just going to sell this or that; and move the monies to such and such fund(s). A weekend of pondering this has not brought forth a more clear vision.
:):) I sure as heck hope I/we have not just added to the "confusion" of the markets. I suppose that this house can not whine too much for our YTD performance; but, with what we are invested in, the ride down has been much slower for the past 2 months; but this portfolio also takes much more time to recover to higher YTD levels.
Such are the numerous battles with investments attempting to capture a decent return and minimize the risk.
We live and invest in interesting times, eh?
Hey, I probably forgot something; and hopefully the words make some sense.
Comments and questions always welcomed.
Good fortune to you, yours and the investments.
Take care,
Catch
SELLs/BUYs THIS PAST WEEK:
NONE
Portfolio Thoughts:Our holdings had a -.89 % move this past week. And yes, we are satisfied with our risk adjusted returns YTD. If the portfolio can pull a +10 to 12% for the year; you will not hear any whining from this house. (This sentence was from an April write; and I/we suppose a +5% for the year may now look good, too !) Our portfolio is at - 4.7 % from the high point in mid-July.
The old Funds Boat may make 5% or 25% this year. I expect some rough waters, changing winds and opposing currents; causing the most serious attention being given to a firm hand upon the rudder control.
(April report text) The immediate below % of holdings are only determined by a "fund" name, NO M* profile this week
CASH = 8.3%
Mixed bond funds = 81.8%
Equity funds = 9.9%
-Investment grade bond funds 18.6%
-Diversified bond funds 18.5%
-HY/HI bond funds 25.8%
-Total bond funds 14.6%
-Foreign EM/debt bond funds 4.3%
-U.S./Int'l equity/speciality funds 9.9%
This is our current list: (NOTE: I have added a speciality grouping below for a few of fund types)
ALSO, this week indicates yield/YTD data after the fund name---High Yield/High Income Bond funds
FAGIX Fid Capital & Income (6.4%/-6.5%)
SPHIX Fid High Income (6.9%/-2.8%)
FHIIX Fed High Income (8%/-1.2%)
DIHYX TransAmerica HY (8.6%/-1%)
DHOAX Delaware HY (front load waived) (6.7%/-4.9%)
---Total Bond funds
FTBFX Fid Total (3.3%/+5.5%)
PTTRX Pimco Total (3.3%/+1.9%)
---Investment Grade Bonds
APOIX Amer. Cent. TIPS Bond (2.4%/+7.7%)
DGCIX Delaware Corp. Bd (5.2%/+4.8%)
FBNDX Fid Invest Grade (2.8%/+6.6%)
FINPX Fidelity TIPS Bond (.8%/+10.2%)
OPBYX Oppenheimer Core Bond (4.9%/6.2%)
---Global/Diversified Bonds
FSICX Fid Strategic Income (4.5%/+1.7%)
FNMIX Fid New Markets (5.2%/+2.4%)
DPFFX Delaware Diversified (4.4%/+4.2%)
TEGBX Templeton Global (load waived) (5.3%/-3.9%)
LSBDX Loomis Sayles (5.7%/+1.2%)
---Speciality Funds (sectors or mixed allocation)
FCVSX Fidelity Convertible Securities (bond/equity mix) (3.7%/-12.4%)
FRIFX Fidelity Real Estate Income (bond/equity mix) (5.3%/-1.2%)
FSAVX Fidelity Select Auto (0%/-32%)
FFGCX Fidelity Global Commodity (1.2%/-24%)
FDLSX Fidelity Select Leisure (.6%/-8.5%)
FSAGX Fidelity Select Precious Metals (0%/-11%)
RNCOX RiverNorth Core Opportunity (bond/equity) (2.9%/-8.2%)
---Equity-Domestic/Foreign
CAMAX Cambiar Aggressive Value (.3%/-26%)
FDVLX Fidelity Value (1.5%/-16.9%)
FSLVX Fidelity Lg. Cap Value (1.4%/-12.6%)
FLPSX Fidelity Low Price Stock (.7%/-8.6%)
Comments
I also have a small position in the rather enjoyably bizarre little James Alpha Global Enhanced Real Return, which is a "themed" (emerging markets and inflation) absolute return fund subadvised by Armored Wolf, the company started by former Pimco Commodity RR manager John B. Brynjolfsson. Very interesting little long/short world allocation fund that is invested in various EM assets and inflation-related assets only, as well as "event-linked securities".
I think not only is Europe a concern, but I think emerging markets are becoming an increasing concern (although those markets have already dropped substantially - not saying that they couldn't drop quite a bit further, but they have priced in - I think - a fair deal already.) What's concerning to me are things like the tariff move by Brazil and the bill here against China (http://www.zerohedge.com/news/china-fires-back-us-senate-which-may-have-just-started-sino-us-currency-wars)
People can debate for ages on China's actions over the last decade or so, but my thought is that it's starting to feel like the global pie is getting smaller and you're going to see increasing actions like these in a scramble to put one country ahead of another to get their piece of the pie. If that's the case, it doesn't end well.
I don't think it's time to head for zee hills, but I think things are deteriorating and it's important to keep things to the point where you can sleep well. I think you have to plan and research and not necessarily overreact to things, but on the other side, I don't think one should "just not look at it" either.
I also do think that alternative strategies, such as the Managed Futures funds listed above, may prove to be a good other option to hide out, especially if this is not close to being over.
Edited to add: Europe looking VERY bad this morning.
Go girl !!! Sure got this house nailed against the wall for your YTD.
Have not checked this morning, but I am sure our YTD went negative yesterday and surely will today, if nothing changes with the apparent open.
Regards,
Catch
It's just sort of the world we live in, and that makes it difficult to be any sort of a long-term investor; money just sloshes into one asset class, then piles out and into something else. It's very short-term and based more and more infrequently on a fundamental basis. There's no long-term investment anymore, really. I said this the other day: how does one make rational and fundamental investment decisions when the market can go up 400 points in 45 minutes on a rumor? If you're a daytrader, these kinds of markets are likely terrific. If you're the average person who is just looking to make an investment decision on something for longer than the next 5 minutes, not so much. I think what's remarkable to me is how illiquid the markets feel.
You can tell people that they have to stick with it and be a buy and holder and they won't in a market like this. I do think what's interesting - and this has been seen before over the last couple of years during volatile periods - from 8/24/11, each week there were outflows from US equity funds and 4 out of the 5 weeks, there were inflows to foreign funds. Still a lot of money flowing into bonds at these levels, but what happens when that reverses? I think what concerns me is that you see a lot of average people put money into bonds thinking it's safer haven, then that performance reverses. I wouldn't be surprised if the average person continues to get tossed around in the markets no matter what asset classes they own, possibly for a while.
I've taken a liking to AQR Risk Parity (AQRNX) due to its multiple buckets (about 25/25/25/25, but can be up/down slightly), spreading the risk to credit, equity, global TIPs, commodities, fixed income and currency markets. The buckets remain around 25%, but the individual investments are actively managed.
That could be a shorter-term issue, but when you have officials who don't seem to have a plan, it may be around for much longer than anyone would like. Even if the volatility cools off, you still have markets that were increasingly short-term in thinking to begin with, driven so heavily by computers.
Otherwise, I think it's interesting that people really bailed on EM stocks already; the bailing from EM debt seems to have lagged. Again though, with the Templeton fund, at least there is another layer of the fund in terms of active currency management that can be put into play, which will hopefully help buffer.
Additionally, in terms of your Pimco Global Bond fund, that's largely developed foreign market bonds, which have done better as EM debt has not fared as well this year.
I still have faith in Hasenstab... just can't see how his market is going to improve with all the bad news in his category. Same with Emerging Markets. But, since this is my first experience at watching what, to me, are fairly long-term losses (12 months), especially since TEGBX showed a GAIN in 2008, I think I just need more "immunizing" to loss periods. I seem to be doing ok with my equity losses, but I had hoped the int'l ones would be more diversified than U.S. bonds in terms of when they lose and when they gain. It's hard to see RED, RED, RED almost everywhere lately, especially in all my Mom's USB Trusts (one had nice 13% 12 month gain earlier this year... now down to +2.23 12 month, with -14% loss last 3 months (and I'm sure more losses to come).
I have been watching some of the market neutral, risk managed type funds. Most all seem to do is to lose less during down markets than many equity funds, and don't seem to make up for losses in up markets. But I do want to check out AQRNX more as that seems like an interesting fund. I like the idea of a manager having the World to invest in, but seems like it would be an almost impossible task to keep up with EVERYTHING that is happening EVERYWHERE. And, I just checked their M* allocation... shows 100% CASH!
I have lessened risk in the past few weeks, and really think I've wrapped things up for the year (and getting a little tired of thinking about investing. I'll still chat here all the time, but I just don't want to be thinking about it as much otherwise.) However, while I think things could deteriorate further, I will not be shorting; I'd rather lessen risk than outright short because I just think that you'll continue to see reactionary and possibly increasingly desperate measures from policy makers to try and keep the status quo. People can be short fundamentally, then a rumor takes the market up 400 points in 45 minutes. I'd rather just dial down risk and volatility.
I own Bluecrest Allblue on the London market, which had low double digit NAV gains in 2007 and 2008 (traded at a discount and lost slightly from a share price perspective in 2008, but the underlying NAV gained), then gained quite nicely in 2009, but as with anything else, past performance isn't necessarily indicative of future performance. It definitely might not do well in another downturn, but it has the *potential* (flexibility, tools, etc) to do so.
I own (as of last week or so) Greenlight RE (GLRE), which is a reinsurance company whose float is invested, Berkshire Hathaway-like, with David Einhorn's Greenlight Capital hedge fund. Greenlight RE has not done well this year and the stock did not do well in 2008, but Einhorn has the long/short tools to perform in a tough market, and hopefully the next downturn will be different, but with anything else, no guarantees. Overall though, I like placing money with Einhorn - whose low-key, seemingly low-ego manner I respect and whose views I really agree with - over the long term, and I thought the price was right (trading closer to book value, as well, whereas the stock usually has traded at a more substantial premium - the stock does not track the underlying hedge fund's performance very closely - it can trade over/under) after the turn South the stock had taken earlier this Summer. It's certainly volatile, but again, trying to find funds and other investments with a wider variety of options and flexibility. Not a big investment, but felt comfortable with this as a long-term play after it was quite a bit higher not too long ago. Apparently other hedge fund managers are looking at this structure - popular hedge fund Third Point has started a reinsurance company whose float is invested in Third Point; that will apparently go public soon, although Third Point Offshore (TPNTF.PK) can be found on the pink sheets (but it's terribly illiquid and volatile; it traded at a huge discount to NAV in 2008.)
AQR Risk Parity is an interesting, unique strategy - it's a different take on the allocation fund. It isn't going to gain in a 2008 scenario, but Risk Parity strategies did hold up pretty well during that downturn. There is a paper going over the strategy on AQR's website. The AQR fund's allocation is listed on their website - the way that the fund is structured (it is entirely derivatives-based, futures, etc; it does not invest in individual stocks, it invests in index futures around the globe) doesn't seem to be able to be listed on M*'s website. Asset allocation and top holdings are at the link below.
http://aqrfunds.com/Our_Funds/Individual/FundID_13/Key_Facts/Risk_Parity_Fund.fs
The EM debt situation has rattled a lot of good funds this year (TGINX, as well); I think the asset class has a good future and is something I'd recommend a portion of assets be devoted to for those with fixed income, but if one doesn't own any, I'd DCA in slowly over time.
I think that it was really discussed as a safe haven and attracted a huge amount of inflows (I started selling TGINX when they announced that their assets under management had increased several times over in the span of about 10 months) to what is a relatively small asset class; when investors started leaving towards the "safer harbor" (heavy emphasis on the "'s) of US and developed market debt, it really seemed to cause ripples in the EM debt market and that could continue. Too many people ran in, now that they're going the other way, they're finding it difficult (as discussed in the article below.) I think that managers like Hasenstab are going to navigate this well over the mid-term, and if EM debt keeps heading South, I'd actually look at making some room for a little bit.
It is definitely a volatile asset class; it has performed exceptionally well in 2009/2010, but be prepared for the kind of price action that TGINX (for example) took pretty quickly in 2008.
This article spells out the worst case scenario for EM debt. Systemic crisis seems like a bit much, but it outlines what has been happening. If things start getting on solid footing around the world, you'll probably see the tension in this market start to cool a bit.
http://www.globalpensions.com/global-pensions/news/2112073/em-debt-systemic-crisis
"“There are a handful of enormous global bond investors with heavy exposure to local currency emerging market debt, with some owning over 50% of individual EM sovereign bond issues. If the end investor wants to sell, the fund has to sell, and what if there is no-one that wants to buy,” he said.
“EMD has never had to deal with huge outflows before – in 2009 the foreign ownership was not as large – and liquidity is completely drying up.”"
I have been somewhat encouraged by a bit more discussion on CNBC then there has been about how this has been terrible for those who rely on fixed income. Do I think it'll change? Probably not anytime soon at all, but I was somewhat encouraged to at least hear a bit more discussion on financial media.
"Still.... it now seems so clear that investing has nothing to do with fundamentals anymore... just need to try to figure out what most investors' moves will be."
Yep. I think sort of an example of this is CGM Focus, which was formerly the hottest stock fund in the universe, as manager Ken Heebner would be able to move in and out of trends with impressive skill and pretty impressive speed for an increasingly large fund. For the last two years, Focus has lagged significantly, because I think what trends there have been aren't sustained and Heebner is having difficulty with timing.
There was an article the other day that Heebner's trading this year, if annualized, would work out to a 553% turnover rate (Heebner's previous yearly rates of around 300% were huge - it's always been said that Heebner moves quickly to the point where looking at Morningstar holdings was pointless, at 553% turnover, it's really pointless), which is insane for a stock mutual fund. It just kind of turns into a scramble. Heebner's highly intelligent and I respect him as a manager, but it sort of symbolizes the kind of rapid movements from stock-to-stock and sector-to-sector; the manager considered probably the most nimble in the business is getting whipped around trying to find a consistent trend.
You can tell the public to buy and hold 24 hours a day/7 days a week, but this market is going to continue to alienate people and I wouldn't be surprised if this level of volatility continues. You see it in the weekly mutual fund outflows. I do think there's going to be a point where bonds start to reverse, but maybe not for a longer time than I can imagine. I shorted treasuries again yesterday with a little bit. I just can't imagine there's that much downside at this point to that, but I'm sure I'll probably find out the opposite.
I think Bob C has been good in trying to work in alternative/non-correlated strategies for his clients that reduce volatility and may actually perform well when the markets aren't (managed futures is probably the prime example.) I'll admit that I've taken money out of risk in the last month or so and have moved to things like AQR Risk Parity (AQRNX), which is certainly not no risk, but is dialing down risk. I also continue to hold some oddball stuff, including a few shares of a fund that holds timber land in various parts of the globe. I continue to hold Jardine Matheson, which for me is really one thing that I do plan to be a buy and holder of as a bet on Asia over the very long-term (5-10+ years and possibly longer) There's definitely a few other things that I plan on keeping for the long-term, but for the meantime, risked has been dialed down and I'm circling the wagons around those longer-term holdings.
I do think EM debt became too hot an asset class, but I like the long-term fundamentals and story. Well, you get big money that flows in and then at the drop of a hat, zips out (which, again, is not good with a smaller asset class) There's no long-term viewpoint really, on that or anything else. EM stocks have really not done well this year, so I think those will come around if people start bargain hunting, and if sentiment on EM changes, then EM debt may start to stabilize.
Very, very sorry to hear about your husband's mother! That's really sad and tough, and an example of how the financial crisis has really left a lasting and terrible impact.
"My Mom's medical group will no longer take her as Medicare + Supplemental insurance (is requiring Advantage HMO now to keep her as a patient)." I think it's really very hard, and I know older family/friends are looking at long-term care and other such options and finding it difficult in terms of the process and pretty much everything else about it.
You noted: "I do think EM debt became too hot an asset class, but I like the long-term fundamentals and story. Well, you get big money that flows in and then at the drop of a hat, zips out (which, again, is not good with a smaller asset class)."
Without a doubt, we know there is always hot money in and out of various sectors.
My non-scientific view for the broad based funds invested in EM debt; is that the strength of the $US has had as much an impact upon values of these funds, versus anything else.
I have not charted anything; but watching our bond funds and various market moves "almost" lends to an intuitive feel for where a particular bond fund may be "heavy weighed" at a particular time, as we only know the holdings from the most recent prospectus.
I would suspect that a chart of the $US looking back 6 months through the past week, placed against 5 EM debt funds/etfs would show a correlation. Wishing I currrently had more time for this work.
Regards,
Catch