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Pimco Crown Adjusted for New Bond Era By Lisa Abramowicz Dec 27, 2016 8:00 AM EST I spoke with Ivascyn recently about how Pimco is approaching the year ahead given this difficult backdrop. He emphasized the process by which the Pimco team debates its investment views, where different members challenge one another ..
"The human mind tends to play tricks on us," he said in a phone conversation. "There's a tendency to seek out research that supports an existing view."The better approach, he said, is to actively seek out credible, contrarian views and data and consider the possibility that your views are wrong.
Going into next year, Pimco has fewer high-conviction, macroeconomic calls than in the recent past, and it's aware that it's never been more expensive to execute trades. In 2017, the firm will likely spend a considerable amount of time trying to understand the policies of President-elect Donald Trump, whose election has spurred the biggest monthly selloff in U.S. government bonds since 2009.
Given the unpredictability, Pimco's funds have been increasing cash allocations in some portfolios and preparing for a default cycle at some point. While Pimco isn't expecting an imminent rash of insolvencies, Ivascyn thinks that a recession is coming and that it's time to start preparing.
The market has "gone from fear to what seems like a good deal of complacency," he said. Investors have to be "very, very careful about a reliance on investments that are only where they are based on central bank policies." He cited Italian government bonds as a perfect example of this. https://www.bloomberg.com/gadfly/articles/2016-12-27/pimco-crown-adjusted-for-ivascyn-and-a-new-bond-era Added What Complacecy? Last-minute spending surge lifts U.S. holiday shopping season By Nandita Bose | CHICAGO....There is growing evidence that an improving job market, lower gasoline prices and growing consumer optimism all contributed to the surge.
President-elect Donald Trump attributed the spending increased to his impending arrival at the White House.
Hey, catch. Motivation= a better-yielding bond fund. I've been comparing its numbers to my currently-owned PRSNX--- which hasn't been at all BAD. VWINX $49B AUM. Holy Toledo Mudhens, Batman! It's a behemoth.
From a hard bottom in early Feb. 2016, a large portion of the better managed HY bond funds are running about +16% returns. This movement may exist and continue the trend into the unknown future for "x" months or ??? One is or would be buying HY at a pretty high price at this time, IMHO. If pricing starts to decline for any number of reasons, one will find the yield even better than now; but at the expense of the loss of capital (losing money on the pricing, eh?). This situation would likely find a loss in value overall. We've held as much as 60% of our portfolio in HY/HI; but not at this time, nor would I buy at this time. Just my personal 2 cents opinion.
As to VWINX (40 bond/60 equity): you may entry any fund you choose to compare at this site page and find how returns compare going out to 10 and 15 years for this conservative fund. Yes, bonds may affect this fund going forward more so than in past years. Institutions and folks will buy bonds going forward. Pension funds and others have limited choices for some holdings to maintain policy pay out into the future. Bonds may have been wounded recently, but they are not dead. And as you understand, there are many types of bonds; and all have their day(s) in the sun.
Shouldn't we be in "short bonds" only and not at all if we are young? I mean, I dunno if yields have to go negative for bond funds to perform like they have been over past several years.
Hi @VintageFreak I'll offer this link which is decently presented with facts and graphs (note: this article end data is October and the % data is much changed in 2 months). I'm still inclined to "sense" that this time remains different and one will find that behavior of bonds does not always fit into a molded path as may be suggested by fundamental theory(s). If someone is able to find an article of conviction and data as to why being invested in short term bonds is the "sweet spot", at this time, please post.
Today's global economic animal remains a new breed, IMHO. U.S. elections have thrown another unknown into the mix. A most interesting period awaits we investors.
Lastly, because of the "this time is different" aspect; I may indeed be trapped into some form of "cranial/rectal inversion" to which I have not yet recognized this personal condition.
@catch22: that was very clear. I appreciate the link! I do not dislike PRSNX. I had good reasons for selecting it. TRP shows me EXACTLY my personal rate of return in that fund, and it's disappointing, that's all. I've X-Rayed the thing and can see what PRSNX is holding, and durations, maturities. So, "don't just do something, stand there!" I hold domestic bonds in my balanced funds. I'll be unloading and re-deploying the proceeds from DLFNX. I assess that I can comfortably give up that very small DLFNX position, anyhow, and it will bring me to 35.4% of portfolio still in bonds of all sorts. Thanks, again.
Hi @VintageFreak I'll offer this link which is decently presented with facts and graphs (note: this article end data is October and the % data is much changed in 2 months). I'm still inclined to "sense" that this time remains different and one will find that behavior of bonds does not always fit into a molded path as may be suggested by fundamental theory(s). If someone is able to find an article of conviction and data as to why being invested in short term bonds is the "sweet spot", at this time, please post.
Today's global economic animal remains a new breed, IMHO. U.S. elections have thrown another unknown into the mix. A most interesting period awaits we investors.
Lastly, because of the "this time is different" aspect; I may indeed be trapped into some form of "cranial/rectal inversion" to which I have not yet recognized this personal condition.
I like several funds in the context of this discussion: OSTIX, PONDX, BSIIX, LASYX, and LLDYX. TGBAX, for those who can handle some longer periods of under-performance. For those looking for yield outside of bonds, KIFYX has some attraction despite its expenses.
Comments
By Lisa Abramowicz Dec 27, 2016 8:00 AM EST
I spoke with Ivascyn recently about how Pimco is approaching the year ahead given this difficult backdrop. He emphasized the process by which the Pimco team debates its investment views, where different members challenge one another ..
"The human mind tends to play tricks on us," he said in a phone conversation. "There's a tendency to seek out research that supports an existing view."The better approach, he said, is to actively seek out credible, contrarian views and data and consider the possibility that your views are wrong.
Going into next year, Pimco has fewer high-conviction, macroeconomic calls than in the recent past, and it's aware that it's never been more expensive to execute trades. In 2017, the firm will likely spend a considerable amount of time trying to understand the policies of President-elect Donald Trump, whose election has spurred the biggest monthly selloff in U.S. government bonds since 2009.
Given the unpredictability, Pimco's funds have been increasing cash allocations in some portfolios and preparing for a default cycle at some point. While Pimco isn't expecting an imminent rash of insolvencies, Ivascyn thinks that a recession is coming and that it's time to start preparing.
The market has "gone from fear to what seems like a good deal of complacency," he said. Investors have to be "very, very careful about a reliance on investments that are only where they are based on central bank policies." He cited Italian government bonds as a perfect example of this.
https://www.bloomberg.com/gadfly/articles/2016-12-27/pimco-crown-adjusted-for-ivascyn-and-a-new-bond-era
Added
What Complacecy?
Last-minute spending surge lifts U.S. holiday shopping season By Nandita Bose | CHICAGO....There is growing evidence that an improving job market, lower gasoline prices and growing consumer optimism all contributed to the surge.
President-elect Donald Trump attributed the spending increased to his impending arrival at the White House.
"The world was gloomy before I won - there was no hope. Now the market is up nearly 10 percent and Christmas spending is over a trillion dollars!" Trump wrote on Twitter.
http://www.reuters.com/article/us-usa-holidayshopping-idUSKBN14H02C
Catch
As to VWINX (40 bond/60 equity): you may entry any fund you choose to compare at this site page and find how returns compare going out to 10 and 15 years for this conservative fund. Yes, bonds may affect this fund going forward more so than in past years. Institutions and folks will buy bonds going forward. Pension funds and others have limited choices for some holdings to maintain policy pay out into the future. Bonds may have been wounded recently, but they are not dead. And as you understand, there are many types of bonds; and all have their day(s) in the sun.
http://performance.morningstar.com/fund/performance-return.action?t=VWINX®ion=usa&culture=en_US
I'll offer this link which is decently presented with facts and graphs (note: this article end data is October and the % data is much changed in 2 months).
I'm still inclined to "sense" that this time remains different and one will find that behavior of bonds does not always fit into a molded path as may be suggested by fundamental theory(s).
If someone is able to find an article of conviction and data as to why being invested in short term bonds is the "sweet spot", at this time, please post.
Today's global economic animal remains a new breed, IMHO. U.S. elections have thrown another unknown into the mix. A most interesting period awaits we investors.
Lastly, because of the "this time is different" aspect; I may indeed be trapped into some form of "cranial/rectal inversion" to which I have not yet recognized this personal condition.
Regards,
Catch
http://www.schwab.com/public/schwab/nn/articles/Can-Bond-Funds-Make-Sense-When-Interest-Rates-Rise