I have a pretty cool story to relate to my fellow investors. This may or may not be interesting to you. Today, I could not figure out the average credit quality of the bonds held in GLRBX. *M does not give a credit average and the James Advantage website does not provide one, either. The website provides a pretty good breakdown but not overall average credit quality of the bond sleeve.
Anyway, I called the customer service number provided on the James Advantage website and asked the question to a customer service rep. He did not have the information readily available and said someone would call me back with the information. He asked if I represented a broker and I said no. I said I was an individual investor that was considering purchasing shares of the fund. I provided my phone number for a callback. Lo and behold, I received a phone call from Beavercreek, Ohio. Someone left a voicemail. I listened to the voicemail and it was none other than Tom Mangan, one of the portfolio managers for GLRBX as well as VP and CFO of James Advantage funds. He provided the necessary information and said call him back with any questions. Aside from the treasuries held in the fund, the average credit quality is about AA for the rest of the bond sleeve held in the fund, he said. I thought that was pretty eye-opening that a fund manager would take the time to call back a potential shareholder about the fund. Pretty neat in my eyes. Anyway, FWIW.
Happy New Year all !
Will
Comments
>> *M does not give a credit average
You did see that under Portfolio, Bond Style, Statistics, Detail it simply says Not Rated for Avg Credit Quality.
Then it does a breakout under Credit Quality, which perhaps we are supposed to average on our own? And the footnote says it is as of 4y ago, wtf.
And then down further there are bond sector weightings, in great detail, plus coupon info, yada. Hardly as handy as phone call, of course, but more granular.
I would suggest being wary of the benchmark/category average in the all the credit tables. Various numbers don't come close to the figures shown on the page for FBALX. (The figures are supposedly separated by a month, Sept vs. Oct 2015, so they shouldn't match exactly, but they should be closer than they are.)
It seems that if the last time that M* did a credit analysis was five or more years ago, M* does show the current benchmark and category figures. See the tables for OAKBX, where the claimed date for the tables is 12/31/10. The benchmark/category figures seem to match the (current) figures found with FBALX.
>> *M does not give a credit average
You did see that under Portfolio, Bond Style, Statistics, Detail it simply says Not Rated for Avg Credit Quality.
Then it does a breakout under Credit Quality, which perhaps we are supposed to average on our own? And the footnote says it is as of 4y ago, wtf.
And then down further there are bond sector weightings, in great detail, plus coupon info, yada. Hardly as handy as phone call, of course, but more granular.""
I have found that *M leaves a lot to be desired with much of their bond analysis for balanced funds. Since balanced funds are a big part of investing in today's environment, you would think they would devote more time and analysis to them. Makes you wonder why *M cannot make a simple phone call like I did.
>Makes you wonder why *M cannot make a simple phone call like I did.
It is quite possible that despite the fund being a mix of Treasuries (for all intents and purposes AAA) and other bonds "averaging" AA, M* would compute an average lower than that. This is because M* weights bonds by their likelihood of a default (and by size of position), and that probability weighting results in a lower average than a simple dollar-weighting of the bonds' credit ratings.
So M* could easily have made a phone call, but they wouldn't have gotten more information than they already had - they would still need to go through the portfolio bond by bond and compute their risk-weighted credit quality average.
Morningstar Methodology for Average Credit Quality
You should be careful not to compare the average you were told with averages you see for other funds on M* pages. In a sense the basic dollar-weighted average you received is graded on a curve, as it understates the default risk. (That's assuming that what you were told was indeed just a dollar weighted average.)
The best case is that these ratings represent the rating firms' averages of the bonds in the portfolio (based on the ratings each firm gives to the bonds). Here's Moodys' methodology for computing the risk weighted average credit rating for CDOs; I would assume they would apply same weightings to fund portfolios:
https://prnedelivery.morningstar.com/Average_credit_Quality_Methodology_Change_2010.pdf
Moodys', like M*, risk-weights the bonds. One can see that Moodys' and M*'s weightings are similar. So the weighted average computed by the rating firms and by M* should be comparable.
The worst case is that what you were told was the result of James Advantage averaging the Moodys' bond ratings for the portfolio and averaging S&P's ratings as well. Since each firm rates bonds differently, even simple (dollar-weighted) averages could be different for the Moodys' bond ratings and the S&P bond ratings.
Did you get any idea of who was doing the averaging of the Moody's bond ratings for Moodys' portfolio credit rating - Moodys' or James?
Regardless of what calculations were used for the stated Moodys' and S&P averages, they were different from how M* would calculate the average credit quality. (That's obvious from the fact that you've got two different averages - at least one of them wouldn't match M*'s average.) So M* would still have to do its own calculations, bond by bond. Still not a matter of M* just picking up the phone.
FWIW, here's a paper from 2009 (just before M* went to a risk-weighted methodology) explaining why risk weighting is important:
http://www.slcg.com/pdf/workingpapers/Average Credit Quality in Bond Portfolios.pdf
Is Oakmark is on M*'s "black list"? OAKBX is a silver-rated fund. Yet M* hasn't done an analysis of OAKBX's bond holdings for even longer than for GLRBX. Then there's BERIX, another silver rated fund, without a credit analysis since 2012.
M* has current credit analyses of 162 out of 192 conservative allocation funds, including funds like HINAX, a one star fund with $1.1M in AUM. I see pretty good coverage, and no particular pattern among the 30 omitted, though perhaps they tend to have somewhat fewer stars on average (no 4* funds) than the 162 that are analyzed.
My mention of M* was to point out that one has to be careful with processed data from different sources - if sources process raw data differently, the resulting numbers can't be compared. You mentioned trying to get processed data from M* and from the fund. That opened up this apples and oranges problem.
M* is as clear as anybody on its methodologies - how it processes raw data. It's good that you could get some processed numbers from the fund manager; perhaps you should take him up on his offer and call him back to inquire how the processing (averaging) was done.
Your intent may not have been to comment on M*, though it seems hard for you to resist: "Let's just say that I would never pay their membership fees for their services, or lack thereof."
Let's just say it was a nice gesture by a fund manager and leave it at that.
You asked how many of the 162 funds M* calculated this year. I'd say all of them. The vast majority of current bond quality averages were calculated for the past quarter (9/30/15). Though you're right, some fund families are more helpful than others.
Fidelity seems to have provided data ahead of what's legally required. M* was able to compute the average quality of Fidelity's conservative allocation funds as of 10/31/15, a month more recent than most.
There's a reason why you wander over to the reference section of your library. You put in time and effort assimilating information because you find value in the M* subscription material. Let's just leave it at that.