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I'm out of it now but I still keep an eye on the fund. It has held up quite well so I got out too early. I was worried about the rates. At some point I will get back in once things stabilize.
Brinker got out too, because he is convinced that interest rates will rise and he is actually keeping the duration of his bond funds to an average of 1.1, which is incredibly short. The GNMA funds have durations way above that
He owns OSTIX. Osterweis Strategic Income. I think M* now has it classified as a junk bond fund, but it keeps duration short to protect against interest rate hikes. He owns the Fidelity bank loan fund. And a Gundlach low duration fund. He only recommends 4 fixed income funds.
OSTIX, duration 1.94 years. Sort of like a short term junk bond fund right now. Supposedly it has the ability to go anywhere, but M* says it has been mainly in junk bonds for many years now. Not sure how many years they have been as short duration as they are now.
Well that's interesting. He was against junk bonds back when but of course stocks were the sure bet too. OSTIX sounds like ASDVX which I own. He is the king of the $cost avg.
Well that's interesting. He was against junk bonds back when but of course stocks were the sure bet too. OSTIX sounds like ASDVX which I own. He is the king of the $cost avg.
He only went into funds like OSTIX due to his conviction that interest rates will rise and traditional bond funds will do very badly. That's why he went into Fidelity's bank loan fund too. And Gundlach's Low Duration Bond, and Metro West Low Duration Bond. He's focused on only one thing with bonds right now: he says rates will rise and bond funds will do badly, except short duration. Now, if you go short duration Treasuries, those will do fine, but they have almost no yield.....therefore, he went into the bank loan fund, OSTIX, and Gundlach's Low Duration Bond. And his average duration of 1.1 is about as low as you can get. Fidelity Floating Rate High income has a duration of something like 0.24 years, so a hefty weighting to that keeps his duration very low.
@rjb112, thanks for your thoughts, it's good to hear some confirmation about my choice to move out of LSBRX, given my particular portfolio's needs, despite its excellent performance.
Yeah, I probably should've bought a Treasury fund instead, something like EDV, but I think that particular boat has already sailed. I'll hold on to SUBFX. Eventually interest rates have to rise.
But SUBFX does show the danger of unconstrained bond funds. I don't know if anyone is smart enough to get interest rate calls consistently right, but it does seem like some people are smart enough to find mispriced securities in the bond (or stock) market, so perhaps the thing to do is pick a benchmark that fits your portfolio's needs, then either buy the index or buy a fund whose managers aim, via research, to overperform it slightly.
Still, considering that SUBFX got its big bet on interest rates wrong so far (though perhaps they're early, not wrong), to be down only 2.4% for the year is a testimony to the fund's risk control skills.
I believe the only way for rates to go is up but the bigger question is when? Janet Yellen seems more and more convicted to keep them pat for the near future.
One reason I went into ASDVX was that it is short duration. ( < 3 yrs ) . I hope it works out.
I'll have to listen to him again. I'm sure I can listen on the internet somewhere.
You can listen to the archives on ksfo.com Choose Sunday from 1-4 pm. There is a 7 day archive of all the ksfo.com radio programs. He did talk about bonds today. Actually, you can skip 3-4 pm if you are mainly looking for his info on bonds, because 3-4 pm is an interview with a guest author
@expatsp: EDV has a duration of 24.9 years! So if you are in that fund and interest rates go up 2%, the net asset value of that fund goes down by 50%. That's some serious stuff.......for that reason, I would never invest in anything like that.......well, unless we had a repeat of September 8, 1981, when the 10-year Treasury had a yield of 15.59%......remind me then, and I'll buy an extended duration Treasury!
You can buy short term Treasuries, Intermediate term Treasuries, Long term Treasuries, etc. Or you can buy individual Treasuries at any place from less than one year all the way out to 30 years.
I wouldn't count on people getting interest rate calls right, or any other predictions right, at least not on a consistent basis. They can certainly get a lucky one or two.
Another option for fixed income money is to go with an online FDIC insured bank and accept anywhere from 0.87% at Ally Bank to 0.95%, and have instant access to your money, and total safety. Of course, that's all you are going to make. But it does diversify a portfolio that is 85% stocks.
@expatsp: I see another thread, where some Moose has switched into the EDV you mentioned! That's a gutsy/brave call with rates this low, and huge interest rate sensitivity. The Moose, whoever that is, must think the economy will slow from here. The yield is 3.22%. There was a guy named Robert Kessler who was on WealthTrack not long ago who was strongly in favor of long term Treasuries. He and the Moose see eye to eye. Personally, I would never take that much interest rate risk, unless yields were sky high, per my prior post.
... During the crisis, risky asset including junk bonds were sold indiscriminatively. Fundamentally the default rate of junk bonds has not worsen in that period, and his holdings continued to pad their dividends. ...
i agree that all risky assets were sold indiscriminately. however, i take exception with the next sentence. the long term average default rate on HY bonds is 3.9 and lev loans @ 3.4%. in 2008, HY bonds defaulted @12% and loans @over 14% - multiple times their averages. by the way, YTD we are tracking under 2% (ex-TXU) and this is expected to continue for a while. (please note that the average recovery rate was under 27% in 2008, and is 47% ytd -- with sr secured loan recovery @ 87%)
Generally, when HY bonds are depressed as in 2008/2009, their return resembles that of equities, however they have offered better risk-adjusted return. when HY bonds are fully priced, like 2013-14, they trade with duration, i.e. similarly to the higher quality bonds. the spread is not enough to compensate for interest rate changes. arguably, the only real value remaining in fixed income is CMBS (regular non-agency RMBS have been picked up by Ivascyn and such), but the market is tiny and illiquid.
if one wants to use bonds as ballast to counter volatility in their equity portion, one should go with higher quality ones. it will not pay much, but is negatively correlated to equities. if one wants performance / income from their bond portfolio, one should find a proven flexible manager with the flexible/unconstrained mandate, and sit back and relax.
the problem is of course that even the trusted managers will underperform as they have done ytd -- everyone loaded up on short duration but the long bonds have rallied this year. and the performance chase will go on....
Well, so far no one has talked, at least explicitly, about munis. Are they essentially subject to the same performance criteria that's being examined, or are they potentially different in some way?
mostly interest rate risk -- they are usually of longer maturities ... and some credit risk (or perceived credit risk) every time either PR or Illinois (or Whitney) hits the headlines ... usually good ballast to the equity portion. as a triple tax-payer, i have quite a few.
Well, so far no one has talked, at least explicitly, about munis. Are they essentially subject to the same performance criteria that's being examined, or are they potentially different in some way?
Are ya wondering whether there is or is not any really silly stuff taking place from and with central banks, and continuing to attempt to prop up soft economic numbers in most places, globally???
In spite of what or who one reads about growth here and there; the central bankers are still worried and will; one way or another, continue to place more crutches of support, wherever they find a need.
I am sure Dan Fuss and many other superior bond managers are wringing their hands every day wondering when a crutch may bend too far and break.
I'm not really thrilled about the prospects of higher rates (for whatever reason) and the impact upon some bond funds; "BUT" equity investors should also remain alert, too; as the removal of easy money will affect this area, as well.
The below graph is for Euroland and the U.S. Look at the 10 year rates for Italy, Portugal and Spain. Ya, right ! Compare the current to one year ago.
the current yields table posted by catch22 is a must-see. look at the predominantly red 'spread to treasuries' column. Spain yields less that USTs today! German/ US spreads are at the 80 year high!..as long as European problems persist, the USTs (i.e. longer-term interest rates) will stay somewhat grounded. the shorter rates will respond to the fed's policies of course which in turn will respond to the improving gdp/employment picture in the US.
I'll have to listen to him again. I'm sure I can listen on the internet somewhere.
You can listen to the archives on ksfo.com Choose Sunday from 1-4 pm. There is a 7 day archive of all the ksfo.com radio programs. He did talk about bonds today. Actually, you can skip 3-4 pm if you are mainly looking for his info on bonds, because 3-4 pm is an interview with a guest author
Bob Brinker is now recommending bond funds with shorter durations than the GNMA fund. The average duration is just a little over 1. His logic is that, in an improving economy, he would rather have credit risk than interest rate risk. He's actually going against the advice generally given by Vanguard (to stay the course in total bond market index) and Jason Zweig and I'm sure others. I like Brinker as well and would welcome the opportunity to dialogue his advice.
I'll have to listen to him again. I'm sure I can listen on the internet somewhere.
You can listen to the archives on ksfo.com Choose Sunday from 1-4 pm. There is a 7 day archive of all the ksfo.com radio programs. He did talk about bonds today. Actually, you can skip 3-4 pm if you are mainly looking for his info on bonds, because 3-4 pm is an interview with a guest author
Bob Brinker is now recommending bond funds with shorter durations than the GNMA fund. The average duration is just a little over 1. His logic is that, in an improving economy, he would rather have credit risk than interest rate risk. He's actually going against the advice generally given by Vanguard (to stay the course in total bond market index) and Jason Zweig and I'm sure others. I like Brinker as well and would welcome the opportunity to dialogue his advice.
@Jim0445, yes, in posts to JohnChisum I went over this. He sold his Vanguard GNMA holding quite some time ago, because he is convinced interest rates will rise and any bond fund with a significant duration will do very poorly. Currently the Vanguard GNMA fund has a duration of 5.8 years. Brinker has an average duration of 1.1 years on his Income portfolio.
Yes, I welcome the opportunity to dialogue his advice with you too. He's definitely going against the advice to 'Stay the Course'.....he's investing in Fidelity's bank loan fund, OSTIX and DoubleLine Low Duration and MetroWest Low Duration. Taking a lot of credit risk. Those investments didn't work out well at all in 2008.......
For all the years I listened to Brinker, and that amounts to around 15 years, he was very much the "stay the course" advisor. Perhaps his change of stance is reflective of a new investing environment we now face. Since 2008 it has been fast changing.
For all the years I listened to Brinker, and that amounts to around 15 years, he was very much the "stay the course" advisor. Perhaps his change of stance is reflective of a new investing environment we now face. Since 2008 it has been fast changing.
One thing JohnChisum is that he has always been a market timer. His monthly subscription newsletter is called market timer. So I think bailing out of Vanguard GNMA's, Vanguard TIPS, and other high quality fixed income investments goes along with a Marketimer, even though market timing is usually associated with stocks. Actually, he's timing the bond market in a sense.
That was something I guess I would have to wait twenty years for. I didn't really pay much attention to the MarketTimer title because he seemed to be a steady and sure investor with some small changes along the way. When the 2000 tech crash hit there was no change. Maybe he figured it was too late? Anyway that was the beginning of when I started to question his tactics. I think he was more like John Bogle than a timer. That crash did come out off nowhere to be fair.
He did call an excellent sell signal in January of 2000, but only sold 60% of his stock allocation. Then I believe it was August when he said to buy the QQQ's with 20-50% of the cash reserves generated from the Jan 2000 60% sell. Then he later re-issued the QQQ buy several times in 2001. He did correctly buy back into the market in March of 2003. Those were his two best calls, Jan 2000 and March 2003. Since 2003, he has stayed fully invested, and missed the big bear market in 2007-2009. He also sold the market in 1988 after the Oct 1987 crash. That sell signal did not work out.
The first time I ever heard Bob Brinker was around 15 years ago when he was recommending I Bonds with a coupon rate of 3% plus inflation. I knew that anybody recommending I Bonds and low-cost no-load funds had to be okay in my book. He's always emphasized proper investment allocation and the role that fixed income securities have in a portfolio.
My memory is not so good these days so thanks rjb for the clarification of the sell and buy signal history of Bob Brinker. What I do remember is that I was pretty much out of the market before the bear really sunk its teeth. I did nothing with the QQQs as that made no sense at the moment. As my mind lets me remember, when u got that buy signal I was wondering if he thought this was a correction? I had no idea what to believe so I stood back. Fate blessed me. I di get back in later but most of my friends and coworkers would never touch stocks or funds again. That's when the old adage of "buying when others are fearful" hit me and I haven't looked back. I did ride the 2008 blip fully invested but that was not as bad.
Bob Brinker missed the call with the great recession, and a few others to boot, when the economy tanked along with the markets. It was highly leveraged up and good assets got sold to meet margin calls which in turn caused even more selling as a good number of investors sought the exits. I still have some of those newsletters in which he touted the market. He is, no doubt, a market timer. And, as market timers go they are just like everyone else ... at times ... they miss a call. They give us their best thinking but that does not mean Mr. Market will govern to the beat of their call. So, govern with great caution. Become your own thinker. After all, it is your money at play in the market not theirs so do what you feel is best for you. Be accountable to yourself and don't blame a failure on Mr. Brinker. If you are dumb enough to take what he says as the gospel ... Well be prepared to recieve the friuts of his thinking ... good or bad. And, yes he has made some correct calls along the way ... but, missed a good number too.
So, for me, if I miss the call ... It is because of my own thinking and not someone elses.
I no longer listen to his radio progrm nor do I any longer subscribe to his newsletters.
Comments
Yeah, I probably should've bought a Treasury fund instead, something like EDV, but I think that particular boat has already sailed. I'll hold on to SUBFX. Eventually interest rates have to rise.
But SUBFX does show the danger of unconstrained bond funds. I don't know if anyone is smart enough to get interest rate calls consistently right, but it does seem like some people are smart enough to find mispriced securities in the bond (or stock) market, so perhaps the thing to do is pick a benchmark that fits your portfolio's needs, then either buy the index or buy a fund whose managers aim, via research, to overperform it slightly.
Still, considering that SUBFX got its big bet on interest rates wrong so far (though perhaps they're early, not wrong), to be down only 2.4% for the year is a testimony to the fund's risk control skills.
One reason I went into ASDVX was that it is short duration. ( < 3 yrs ) . I hope it works out.
Choose Sunday from 1-4 pm. There is a 7 day archive of all the ksfo.com radio programs. He did talk about bonds today. Actually, you can skip 3-4 pm if you are mainly looking for his info on bonds, because 3-4 pm is an interview with a guest author
You can buy short term Treasuries, Intermediate term Treasuries, Long term Treasuries, etc. Or you can buy individual Treasuries at any place from less than one year all the way out to 30 years.
I wouldn't count on people getting interest rate calls right, or any other predictions right, at least not on a consistent basis. They can certainly get a lucky one or two.
Another option for fixed income money is to go with an online FDIC insured bank and accept anywhere from 0.87% at Ally Bank to 0.95%, and have instant access to your money, and total safety. Of course, that's all you are going to make. But it does diversify a portfolio that is 85% stocks.
@MikeM: bonds have never been easy.
Generally, when HY bonds are depressed as in 2008/2009, their return resembles that of equities, however they have offered better risk-adjusted return. when HY bonds are fully priced, like 2013-14, they trade with duration, i.e. similarly to the higher quality bonds. the spread is not enough to compensate for interest rate changes. arguably, the only real value remaining in fixed income is CMBS (regular non-agency RMBS have been picked up by Ivascyn and such), but the market is tiny and illiquid.
if one wants to use bonds as ballast to counter volatility in their equity portion, one should go with higher quality ones. it will not pay much, but is negatively correlated to equities. if one wants performance / income from their bond portfolio, one should find a proven flexible manager with the flexible/unconstrained mandate, and sit back and relax.
the problem is of course that even the trusted managers will underperform as they have done ytd -- everyone loaded up on short duration but the long bonds have rallied this year. and the performance chase will go on....
In spite of what or who one reads about growth here and there; the central bankers are still worried and will; one way or another, continue to place more crutches of support, wherever they find a need.
I am sure Dan Fuss and many other superior bond managers are wringing their hands every day wondering when a crutch may bend too far and break.
I'm not really thrilled about the prospects of higher rates (for whatever reason) and the impact upon some bond funds; "BUT" equity investors should also remain alert, too; as the removal of easy money will affect this area, as well.
The below graph is for Euroland and the U.S. Look at the 10 year rates for Italy, Portugal and Spain. Ya, right ! Compare the current to one year ago.
current yields
A re-do, of a previous posted link; from May of 2010.....European Debt Crisis.....one of my all-time favorites, and still valid.
Our largest bond holdings continue to be LSBDX and PIMIX; and dedicated HY; for reason of economic softness in the under bellies of economies.
If nothing else, have fun with your investing time.
Catch
Stay dry, Derf
Yes, I welcome the opportunity to dialogue his advice with you too. He's definitely going against the advice to 'Stay the Course'.....he's investing in Fidelity's bank loan fund, OSTIX and DoubleLine Low Duration and MetroWest Low Duration. Taking a lot of credit risk. Those investments didn't work out well at all in 2008.......
Bob Brinker missed the call with the great recession, and a few others to boot, when the economy tanked along with the markets. It was highly leveraged up and good assets got sold to meet margin calls which in turn caused even more selling as a good number of investors sought the exits. I still have some of those newsletters in which he touted the market. He is, no doubt, a market timer. And, as market timers go they are just like everyone else ... at times ... they miss a call. They give us their best thinking but that does not mean Mr. Market will govern to the beat of their call. So, govern with great caution. Become your own thinker. After all, it is your money at play in the market not theirs so do what you feel is best for you. Be accountable to yourself and don't blame a failure on Mr. Brinker. If you are dumb enough to take what he says as the gospel ... Well be prepared to recieve the friuts of his thinking ... good or bad. And, yes he has made some correct calls along the way ... but, missed a good number too.
So, for me, if I miss the call ... It is because of my own thinking and not someone elses.
I no longer listen to his radio progrm nor do I any longer subscribe to his newsletters.
Old_Skeet