Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
The link below will take you to a piece written by Brian Gilmartin of Trinity Asset Management about his thoughts for his retail account holders asset allocations for 2017. He has made post under the handle "fundmentalis."
I have received a message request about Brian Gilmartin. Since others might also seek more information on Brian I thought I'd post a link to Trinity Asset Management's site and what is posted there about him.
In addition, he seems to be connected, within his circle of professional influence, with others that I have followed their postings from time-to-time with their making "good" reference of him.
I have no other information on Brain that I can offer.
As of 12/30/2016 my average duration within my overall portfolio is 3.4 years with an average maturity of 5.7 years according to Morningstar Portfolio Manager. Within my income sleeve I'm finding an average duration of 2.6 years with an average maturity of 4.6 years.
Since, I am not active on the fixed side of my portfolio like I am on the equity side I plan no changes on the fixed side in my funds; and, I will let my bond and hybrid fund managers determine how best to proceed concerning bonds.
However, if I were to do anything, I would add to my bank loan fund.
Yes on the fixed income but no on the duration. One fund I am using, AMJVX, has a duration of just over 4 years. The other does not show a duration. Also my blend of equities and fixed income will vary as the managers adjust the portfolio.
AMJVX is only 41% bonds. How does this fit with fixed income bond funds? M* classifies it as a 30-50% allocation fund.
Bonds: low duration to me just means you will lose less than longer duration. But you are still going to lose. I think you have to be in the sweet spot for bonds, which happens to be floating rate right now and likely the near term future. My largest bond fund holding right now is PFIDX, fwiw. Daniel Ivascyn is a co-manager on this fund. You can't get any better manager than that.
It's a multi-asset fund. Yes, bonds are only a portion of their port. Income is the objective and the port can change depending on where the income can be found.
Your comment ... "Low duration to me just means you will loose less than longer duration."
My thinking ... That depends, in a low duration fund generally the maturity is less than a longer duration fund. With this, should the fund manager elect to hold securities until maturity, or until they are called, then there should be no loss considering they were purchased at below or at face value. However, I agree that the fund nav as it reflects daily pricing of securities held might reflect a loss, for you, from when you purchased. This is one reason I hold my fixed income funds rather than trade around their daily nav pricing. So, if you sell then their could indeed be a loss while the nav is compressed. Again, I'm thinking that if I hold for the long term then I should be ok in my continued holding short duration limited term fixed income funds while I let the bond maturities, and calls, cycle through. Know too, that if the fund manager paid a premium (above face value) for a bond then a loss could occur if held to maturity or sold below the premium paid. Interest the securities have paid will also be used to determine the amount of total return.
Hi Old_Skeet. I appreciate your response. All the research I've done around bond "funds" is they do not act like a single bond purchase, and it does not matter if "you" hold the fund longer. Basically you are not holding the "fund" to maturity and likely either is the manager holding what he bought to maturity. Your mutual fund will go down no matter the duration. There are many articles saying the same thing and I attached one below along with a section referring to bond funds versus a bond.
I could be way off base about this (I am bond-illiterate but trying to understand) but I still think in simplification, as interest rates rise your short term bond fund will decline in fashion with negative return.
What Makes Bonds and Bond Funds Decline in Value? Bond prices move in the opposite direction as interest rates. Here's why: Imagine if you were considering buying an individual bond (not a mutual fund). If today’s bonds are paying higher interest rates than yesterday’s bonds, you would naturally want to buy today’s higher interest-paying bonds so you can receive higher returns (higher yield). However, you might consider paying for the lower interest-paying bonds of yesterday if the issuer was willing to give you a discount (lower price) to purchase the bond. As you might guess, when prevailing interest rates are rising the prices of older bonds will fall because investors will demand discounts for the older (and lower) interest payments. For this reason bond prices move in opposite direction of interest rates and bond fund prices are sensitive to interest rates.
Bond funds work differently than bonds because mutual funds consist of dozens or hundreds of holdings and bond fund managers are constantly buying and selling the underlying bonds held in the fund.
As mentioned here previously, bond funds do not have a "price" but rather a Net Asset Value (NAV) of the underlying holdings. Managers also have to meet redemptions (from other investors withdrawing money from the mutual fund). So a change in bond prices will change the NAV of the fund.
I agree with what is stated from your source material. However, if the bond fund manager elects to hold a bond to maturity the bond holder is paid the face value of the maturing bond. In many short duration and limited term bond funds I have found that a good number of the managers will usually hold most short term issues to maturity so they can collect full face value over selling at a discount as was described in your source material due to market price adjustment from rising interest rates. Why sell a bond at a discount when you can hold for full redemption?
I believe your source material was trying to explain why the nav pricing of most bond funds drop during periods of rising interest rates.
I look to invest with bond fund managers that hold for maturity. In this way there is no loss to be had by holding a bond to maturity unless a premium was paid at time of purchase.
Thanks again skeeter. So if the manager holds every bond (in theory, of any duration) to maturity the mutual fund can not lose money. If for some reason the manager does not hold to duration, in a rising interest rate market, they will have to sell at a loss. That makes sense to me.
Thanks for making comment and the link to the Mutualfund/ETF Research newsletter.
I am also providing a link to Thornburg's Limited Term Bond Fund (THIFX). The fund overview explains how maturing securities are reinvested within the bond ladder. My point remains ... Why sell a bond at a loss when it can be held to maturity where redemption occurs at face value. In this way no loss takes place assuming the bond was purchased at, or back of (@discount), face value.
Hi @MikeM, I look to invest with bond fund managers that hold for maturity. In this way there is no loss to be had by holding a bond to maturity unless a premium was paid at time of purchase. Old_Skeet
I can probably muddy the discussion further
If a manager experiences big outflows from his/her open-ended bond fund over a protracted period during which a large number of investors are selling fund shares (essentially a one-way street), how can he elect to "hold" his bonds to maturity? At some point he has to start selling to meet redemptions, even at a loss.
I suppose it wouldn't be much of an issue with closed end funds or ones that stick with very short term duration. But all the conventional wisdom I've read over the years tends to support Mike M's point that bond funds behave much differently than bonds - especially during periods of rapidly rising rates.
Perhaps I'm misreading the thread. If so, kindly so inform.
You make a good point as to why a loss might take place should a fund manager have a run on the fund and have to sell to meet fund share redemptions. However, my comment centered more around short duration limited term bond funds which are for the most part less impacted with rising rate increases over intermediate term and long term maturity funds.
No doubt, the nav will be impacted during a rising rate environment for most all bond funds. However, my comment was that if a fund manager was able to hold bonds to maturity then there would be no loss in subject bonds called, or redeemed, as long as they had been purchased back of or at face value.
No, I think you read the thread ok ... Perhaps, you missed my thinking as to why I will be keeping most of my short duration limited term funds.
Thanks for the reply Ol'Skeet. Figured maybe I was missing something along the line. I've no "dog in the fight" regarding bonds. I guess most so-called "experts" think they're heading up for the long term. But who knows?
I still like my DODIX - which probably fits the description you just gave. They've held it pretty short in recent years out of caution, but suspect they're beginning to reach out a bit more on the yield curve now. However, I don't expect to make money every year on that fund. Just looking to do a bit better over time compared to what cash would yield.
For information purposes, please go back to the link on the Thournburg fund. Notice in their bond ladder they are holding as a principal step in the ladder about 13% cash with another 14% being held at the 1 year maturity step. This does a couple of things. 1) It provides them with ample cash to meet fund share redemptions should there be a run on bond funds from a rising interest rate environment. And, 2) it also provides them with the ability to do some discount buying from funds that are having to sell bonds to meet fund share redemptions. Should these purchased discounted bonds be held to maturity when redemption takes place, at face value, a profit is made.
To view this, once linked, click on the Fact Sheet to view the Ladder.
I was wondering if there were those that would have taken the time to take a look at the link (study the fund) and have noticed this even though I did not direct one to the Fact Sheet?
Again, I like to invest in bond funds where the manager has the ability, and a good chance even under duress, to hold bonds to maturity. Even though their strategy is a relative simple one I find few bond fund managers that employ it.
Again, I plan to hold most of my fixed income funds currently owned for the long term and let my fund managers use their skills and strategies during the anticipated coming rising interest rate environment we most likely will soon be facing. Hopefully, I will not get dinged too badly.
My best to all ... and, I sincerely wish all "Good Investing."
It is hard to determine the possible changes in NAV of a bond fund, but laddering does give you some hope that the results of interest rate increases will be predictable... as long as the fund is not threatened with large redemptions.
If you buying individual bonds you know what you are getting back.
Another alternative is create your own bond ladder with defined maturity ETFs like Guggenheim Bullet shares. They mature at the end of a specific year and those proceeds can be rolled over into another fund at the duration you desire. There are corporate and high yield versions available ( BSCH and BSJH for 2017, I J L on out to 2026) and ishares has muni ETFs IBMF, G H I out to 2022
As maturity approaches they are mostly cash so the NAV does not vary much, although the return then falls off too
Comments
http://www.trinityasset.com/about-brian.html
In addition, he seems to be connected, within his circle of professional influence, with others that I have followed their postings from time-to-time with their making "good" reference of him.
I have no other information on Brain that I can offer.
My best,
Old_Skeet
Not JohnC,
As of 12/30/2016 my average duration within my overall portfolio is 3.4 years with an average maturity of 5.7 years according to Morningstar Portfolio Manager. Within my income sleeve I'm finding an average duration of 2.6 years with an average maturity of 4.6 years.
Since, I am not active on the fixed side of my portfolio like I am on the equity side I plan no changes on the fixed side in my funds; and, I will let my bond and hybrid fund managers determine how best to proceed concerning bonds.
However, if I were to do anything, I would add to my bank loan fund.
Old_Skeet
Yes on the fixed income but no on the duration. One fund I am using, AMJVX, has a duration of just over 4 years. The other does not show a duration. Also my blend of equities and fixed income will vary as the managers adjust the portfolio.
Bonds: low duration to me just means you will lose less than longer duration. But you are still going to lose. I think you have to be in the sweet spot for bonds, which happens to be floating rate right now and likely the near term future. My largest bond fund holding right now is PFIDX, fwiw. Daniel Ivascyn is a co-manager on this fund. You can't get any better manager than that.
Your comment ... "Low duration to me just means you will loose less than longer duration."
My thinking ... That depends, in a low duration fund generally the maturity is less than a longer duration fund. With this, should the fund manager elect to hold securities until maturity, or until they are called, then there should be no loss considering they were purchased at below or at face value. However, I agree that the fund nav as it reflects daily pricing of securities held might reflect a loss, for you, from when you purchased. This is one reason I hold my fixed income funds rather than trade around their daily nav pricing. So, if you sell then their could indeed be a loss while the nav is compressed. Again, I'm thinking that if I hold for the long term then I should be ok in my continued holding short duration limited term fixed income funds while I let the bond maturities, and calls, cycle through. Know too, that if the fund manager paid a premium (above face value) for a bond then a loss could occur if held to maturity or sold below the premium paid. Interest the securities have paid will also be used to determine the amount of total return.
Old_Skeet
I could be way off base about this (I am bond-illiterate but trying to understand) but I still think in simplification, as interest rates rise your short term bond fund will decline in fashion with negative return.
https://www.thebalance.com/how-bond-funds-can-lose-money-2466567
I agree with what is stated from your source material. However, if the bond fund manager elects to hold a bond to maturity the bond holder is paid the face value of the maturing bond. In many short duration and limited term bond funds I have found that a good number of the managers will usually hold most short term issues to maturity so they can collect full face value over selling at a discount as was described in your source material due to market price adjustment from rising interest rates. Why sell a bond at a discount when you can hold for full redemption?
I believe your source material was trying to explain why the nav pricing of most bond funds drop during periods of rising interest rates.
I look to invest with bond fund managers that hold for maturity. In this way there is no loss to be had by holding a bond to maturity unless a premium was paid at time of purchase.
Old_Skeet
Prospects for International Stocks, Value Stocks, and Bonds in the New Year
funds-newsletter.com/jan17-newsletter/jan17-new.htm
Appreciate you explanations.
Thanks for making comment and the link to the Mutualfund/ETF Research newsletter.
I am also providing a link to Thornburg's Limited Term Bond Fund (THIFX). The fund overview explains how maturing securities are reinvested within the bond ladder. My point remains ... Why sell a bond at a loss when it can be held to maturity where redemption occurs at face value. In this way no loss takes place assuming the bond was purchased at, or back of (@discount), face value.
https://www.thornburg.com/products-performance/mutual-funds/overview.aspx?id=FLI
Thanks agin,
Old_Skeet
If a manager experiences big outflows from his/her open-ended bond fund over a protracted period during which a large number of investors are selling fund shares (essentially a one-way street), how can he elect to "hold" his bonds to maturity? At some point he has to start selling to meet redemptions, even at a loss.
I suppose it wouldn't be much of an issue with closed end funds or ones that stick with very short term duration. But all the conventional wisdom I've read over the years tends to support Mike M's point that bond funds behave much differently than bonds - especially during periods of rapidly rising rates.
Perhaps I'm misreading the thread. If so, kindly so inform.
You make a good point as to why a loss might take place should a fund manager have a run on the fund and have to sell to meet fund share redemptions. However, my comment centered more around short duration limited term bond funds which are for the most part less impacted with rising rate increases over intermediate term and long term maturity funds.
No doubt, the nav will be impacted during a rising rate environment for most all bond funds. However, my comment was that if a fund manager was able to hold bonds to maturity then there would be no loss in subject bonds called, or redeemed, as long as they had been purchased back of or at face value.
No, I think you read the thread ok ... Perhaps, you missed my thinking as to why I will be keeping most of my short duration limited term funds.
Skeet
I still like my DODIX - which probably fits the description you just gave. They've held it pretty short in recent years out of caution, but suspect they're beginning to reach out a bit more on the yield curve now. However, I don't expect to make money every year on that fund. Just looking to do a bit better over time compared to what cash would yield.
Thanks again for the response.
For information purposes, please go back to the link on the Thournburg fund. Notice in their bond ladder they are holding as a principal step in the ladder about 13% cash with another 14% being held at the 1 year maturity step. This does a couple of things. 1) It provides them with ample cash to meet fund share redemptions should there be a run on bond funds from a rising interest rate environment. And, 2) it also provides them with the ability to do some discount buying from funds that are having to sell bonds to meet fund share redemptions. Should these purchased discounted bonds be held to maturity when redemption takes place, at face value, a profit is made.
To view this, once linked, click on the Fact Sheet to view the Ladder.
I was wondering if there were those that would have taken the time to take a look at the link (study the fund) and have noticed this even though I did not direct one to the Fact Sheet?
Again, I like to invest in bond funds where the manager has the ability, and a good chance even under duress, to hold bonds to maturity. Even though their strategy is a relative simple one I find few bond fund managers that employ it.
Again, I plan to hold most of my fixed income funds currently owned for the long term and let my fund managers use their skills and strategies during the anticipated coming rising interest rate environment we most likely will soon be facing. Hopefully, I will not get dinged too badly.
My best to all ... and, I sincerely wish all "Good Investing."
Skeet
If you buying individual bonds you know what you are getting back.
Another alternative is create your own bond ladder with defined maturity ETFs like Guggenheim Bullet shares. They mature at the end of a specific year and those proceeds can be rolled over into another fund at the duration you desire. There are corporate and high yield versions available ( BSCH and BSJH for 2017, I J L on out to 2026) and ishares has muni ETFs IBMF, G H I out to 2022
As maturity approaches they are mostly cash so the NAV does not vary much, although the return then falls off too