PTIAX portfolio followup

AndyJ

We had an earlier discussion on PTIAX, where I said I'd contact the fund and get back on some of the details about the portfolio. I was finally able to speak at some length with one of the analysts, so here's the Cliff Notes version.

* Credit quality: The munis are basically A, with only a few BBBs and nothing below investment grade. For the mostly non-agency mortgages, it's the same thing Gundlach always says: credit ratings alone aren't very helpful for evaluating older, higher-yielding mortgages, since there haven't been any revisions since the typical downgrades of the financial crisis era. PTIAX invests only in prime and Alt-A, no subprime, so the credit quality of their holdings is comparatively good for the asset class.

* Duration: The munis fall in ~ the 7-8y range, and the mortgages (on paper, by the usual calculation) are ~ 4-5. (But see the 'graf below on their take on using duration as a metric.)

* Strategy: As is pretty obvious by the holdings, it's a strategy that attempts to balance risks. On the rate-sensitive side of the scale, as tax-exempt munis have moved into historical fair value range (based on the spread to Treasuries), they've moved some of that part of the portfolio to taxable munis, which they regard as still a decent value. They've also added a single-digit stake in IG corporates, but are going slow in that department and still regard IG corps as peripheral to the strategy.

* Duration and their process: they regard duration as interesting but not definitive, not in their top tier of evaluation metrics. For example, the mortgages they use in the portfolio, on paper ~ a duration of 4-5, typically don't move much if any when there's a rate bump. Their process, "Shape Management," starts with rate and credit-based analysis, but the critical piece is "a forward projection of a fixed-income security’s total return characteristics over a variety of interest rate scenarios, yield curve shifts, and time horizons." (The "shape" is the shape of returns under different scenarios.)

Thus endeth the dissertation. These guys are still very helpful; the delay in responding was apparently due to the ramping-up of the operation that's going on now.

Best, AJ

Edit to add: To clarify on the non-agency mortgages, they're what show on, say, the M* portfolio page as the below-IG part of the portfolio, based on the ratings of years ago, which the PTIAX folks think aren't very accurate today.

TSP_Transfer

Thanks for the informative work @AndyJ
Here are the fund's latest Fact Sheet and Distribution history. PTIAX
http://www.ptiafunds.com/images/website/documents/fund-documents/ptiax_factsheet.pdf

http://www.ptiafunds.com/images/website/documents/fund-documents/ptiax_dividend.pdf
Overview
http://www.ptiafunds.com/about-ptiax

Junkster

Great work Andy and what a nice fund! Wish it didn't have that pesky short term redemption fee. As I mentioned to someone here, that would be something I would love to own if I could ever get into a retirement mode. I should be out hiking today and everyday for that matter. But have to stay put and decide whether I need to lighten up on the junk corporates. At least the junk munis continue to just roll along with PYMDX the leader of the pack.

AndyJ

Junkster said:

At least the junk munis continue to just roll along with PYMDX the leader of the pack.

I keep looking over my shoulder on the junk munis, but right, nothing negative's happening yet - but we're getting close to that time of year for munis. I'd hate to give back very much of the gains - thinking about de-risking, like selling some NHMAX.

heezsafe

Voila--- terrific, Andy, and not exactly what I expected! It does have the ST redemption fee, and its subsequent is $500 (which makes it a little problematic for the small retail investor to "trickle it in"). But if it has been able to perform as it has without including any muni below IG, then that actually makes it even more attractive to me as far as throwing it into my fixed income mix. It has not been challenged by a major credit market test, but its record has advanced the fund into Great Owl status for awhile now, so maybe its time for a MFO profile, or at least a Stars in the Shadows mention?

@Andy Did they have an estimate of how large AUM could become before they'd consider a soft close to maintain effective execution?

AndyJ

Didn't think to ask about capacity - rats.

Noticed on the fact sheet that two corporates show up in the top 10 holdings: Apple and Verizon. Seems like a decent sign if those are indicative of where they'd go with corps.

MikeM

Thanks Andy. With your efforts I decided to buy into this fund.

Ted

@MFO Members: From the what's its worth department, PTIAX Is ranked #1 in the (MSB) Fund Category by U.S. News & World Report.
Regards,
Ted
http://money.usnews.com/funds/mutual-funds/multisector-bond/performance-trust-strategic-bond-fund/ptiax

bee

Performance Trust offers a pure muni fund in PTRMX.

As a multi-sector bond fund, PTIAX seems to have strong convictions for munis and non-agency residential MBS. These two categories seem to make up 75% of the fund.

Old_Joe

Great report, Andy. Thanks very much!

AndyJ

Happy to do it; it helps me to understand to have to write things down.

twmoore

I wish PTRMX was available through Vanguard. I've written both PT Asset Management and Vanguard to try to encourage it.

Mona

AndyJ and Junkster,

I see that PTIAX is down 0.98% in the past 3 trading days, while DLTNX has fared much better and PMZDX is holding its own.

Could the munis be the culprit for the drop in PTIAX? Lower credit quality and higher percentage of non-agency mortgages compared to DLTNX? It appears PMZDX is holding about 21% of non-agency MBS, which would fall in line with DLTNX.

What is your opinion as to what is happening and specifically for AndyJ, since you mentioned that PTIAX is your largest bond holding, are you planning any changes?

Best Regards,

Mona

Junkster

In a nutshell munis follow Treasuries and junk corporates follow oil/equities. I am hoping this big rally in junk corporates doesn't evaporate like so many in the recent past. If stocks and oil continue their ascent of the past three days expect weakness in the Treasuries and munis. As for PTIAX Andy can best answer that. That intraday action on Thursday that we discussed is looking more and more like the real thing.

AndyJ

My best guess on the very recent PTIAX loss is that it's munis to a small degree, but mainly the HY mortgages -- and if they've ramped up IG corporates since the Dec 31 report, that might be part of the mix too.

I'm basing that WAG on 1 wk return figures: PTIAX is -0.86%, versus only -0.2/-0.3% for the muni funds I follow. HY mortgages have been hit much harder; for two examples of pure HY mtg funds, look at DBSCX (Gundlach) at -0.95% and DMO (cef, 34% leverage) at -2.05% on its NAV. As for corporates, VFICX (73% IG corps) is -0.53%.

No change (yet) for me, Mona. It's not that significant yet compared to accumulated gains. But if HY mortgages stay weak for longer, I'd prob'ly shift some shares.

Edit: Forgot about the taxable munis that as of 12/31 were more than half the muni sleeve. Assuming they're on the order of BAB, that could be a significant loser for the fund the last week: BAB's NAV is down 1.19%. So it's probably HY mtg and taxable munis doing the damage.

rabockma

Great fund - too bad not available without transaction fees at either Schwab or Scottrade. Nice work Andy!

AndyJ

Another thought on PTIAX: today looks like it may be a good test of how much effect the long-term taxable munis have been having on the pricing: BAB (taxable munis) and TLT (long Treasuries) are both up, now ~ 0.8% each.

Mona

Hi Andy,

Thanks much for update and information.

Best Regards,

Mona