Portfolio Rebalancing…For Cowards

Ted

FYI: If you have been putting off, or can’t bear the thought of, rebalancing your portfolio, here are three ways to make the process simpler and, perhaps, more tolerable.

Rebalancing your holdings—and, ideally, reducing the level of volatility in your savings—is frequently a difficult exercise. It’s hard to sell assets that have been performing well because we tend to assume they will continue to perform well. And it’s difficult to buy into assets that seem problematic. (Think: bonds, where yields are all but nonexistent.)
Regards,
Ted
http://blogs.wsj.com/totalreturn/2015/04/07/portfolio-rebalancing-for-cowards/tab/print/?mg=blogs-wsj&url=http%3A%2F%2Fblogs.wsj.com%2Ftotalreturn%2F2015%2F04%2F07%2Fportfolio-rebalancing-for-cowards%2Ftab%2Fprint&fpid=2,121

Tampabay

"(Think: bonds, where yields are all but nonexistent) really
My bond yields are out performing the "Market"..... should I Rebalance?

Sven

International and emerging market bonds are lagging domestic bonds this year. Should I selll Apple stock and buy these bonds?

BobC

Non-dollar bonds are being pressured by the strength of the U.S. dollar. Unlike international companies that generate revenue from outside their borders, foreign bonds are dependent to a great extent on the value of their currency. Some folks believe the dollar may stagnate for a while, some believe the euro will strengthen, both of which would help foreign bonds. Timing this is nearly impossible. You might consider Matthews Asia Strategic Income MAINX (keep in mind this is Asia-specific fixed-income), Templeton Global Bond TGBAX (manager Hasenstab is the best at currency choices), or a multi-sector option like BlackRock Strategic Income BSIIX (has about 25% in non-U.S. bonds). These have decent track records and strong management teams. But, yes, you should capture some of the gain in Apple. The point is not to sell Apple, but rather to not lose all the gains should the stock market correct or worse. Remember that a bad day for bonds is nothing compared to a bad day for stocks.

Mona

Hi BobC

I have had quite a bit of success with PFORX over the past year or so. I am thinking of cutting back a bit and with the proceeds opening a position in PDIIX.

What are your thoughts regarding these two funds going forward.

Best Regards,

Mona

Tampabay

Bonds (funds) an be sold at anytime losing Peanuts (pennies) what is the big concern as long as your getting the yields you want?

Mona

Tampabay,

PFORX is primarily getting its return from price appreciation and not yield. The current 30-Day SEC Yield is 1.21%, but the fund is up 11% over the past year.

There are a lot of moving parts and the success is dependent on elements such as the right currency, country and duration decisions. Certainly they made the right call on the strengthening of the USD, which I believe will be more difficult to predict going forward, which is giving me pause (the reason I sold PQTIX a few months back).

Below is the performance summary as of 2-28 (as of 3-28 will be out shortly) and commentary. As you can see, Pimco has listed the contributors and decorators to the monthly performance of the fund.

Contributors
. Overweight to Italian and Spanish duration as European sovereign peripheral speads compressed.
. Shorts to the euro and yen as these currencies depreciated versus the USD.
. Underweight to U.K. duration as yields rose.

Detractors
. Overweight to the long end of the Japanese curve as yields rose.
. Exposure to local duration in Mexico, Brazil and Poland as yields rose.
. Short U.S. Agency MBS as sector spreads tightened.

https://investments.pimco.com/ShareholderCommunications/External Documents/Foreign_Bond_(Hedged)_Monthly_Commentary_770.pdf

I hope you can see it is not a fund that you can dumb down to getting a desired yield.

Mona

Tampabay

Mona, Your Deep......as long as I get my 5-6% yield on my bonds, and Price remains steady or small increases (not 11%yr.) I'm happy with a holding I consider as cash, to be sold at anytime....they serve their purpose, but always nice to get a sensible response around here

hank

I don't necessarily subscribe to all of this rebalancing stuff. Pretty-much on auto-pilot these days through some very good balanced and hybrid funds (which do the rebalancing for you to some extent). I did add a lot to commodities and natural resources in late December and early January. This speculative move has yet to pay off - but I'm the patient type.

Generally, the things I hold (except the energy related) haven't done much the past 3-6 months in terms of outperformance and underperformance. Furthermore, rebalancing in retirement often consists of simply pulling IRA distributions from areas that have done the best.

However, if you are looking for things to rebalance, The link below shows the best 5 and worst 5 market segments for first quarter 2015. Just keep tapping the "next" tab to view.

Among the best performing fund sectors (which you might want to rebalance out of) are Japan, India, health care and U.S. small cap funds. Among the worst areas. (which you might want to rebalance into) are Latin America, natural resources, energy, utilities and precious metals. Keep in mind, however, that utilities are somewhat of an indirect play on interest rates. (That's because they finance a large portion of their infrastructure by floating bonds.) If you think rates will rise sharply, you may not want to get into them.

http://www.investmentnews.com/gallery/20150401/FREE/401009999/PH/the-first-quarters-best-and-worst-mutual-fund-groups&Params=Itemnr=8

BobC

Mona, I am not a fan of PIMCO's secret sauce that permeates its bond funds. We do use PAUIX, and it does have some fixed-income, but has a very different strategy for cash and bonds in general than other PIMCO funds. As we all know, this secret stuff works, until it doesn't work any more.