ten two-and-two funds

David_Snowball

As folks were debating the options for "cash alternative" funds, I thought I'd poke through the MFO Premium data to see what I could find. I wanted to see if there were funds with meaningful annual returns, at least by the standards of the "cash-like" part of a portion, that also had reassuringly limited downside.

I operationalized that desire at "annual returns over 2%" (because, really, 0.6% is close enough to zero that I'd rather put money in an insured savings account and not worry about it) and "a maximum drawdown of less than 2%" (which implies a worst-case recovery period of less than one year). I screened for the last five years worth of data, since many of the cash-alternative funds are relatively young.

I ended up with ten two-and-two funds. In each case I'll report the five-year returns and maximum drawdown over that period, then the actual time it took to recover from the max DD then, finally, the Sharpe ratio. Remember that the Sharpe isn't keyed to max DD or recovery, so those figure imperfectly reflect the Sharpe ratio.

RiverPark Short-Term High Yield (RPHIX): 3.1% annually, max DD of 0.5%, seven-month recovery, Sharpe 4.62. The fund is closed and has the highest Sharpe ratio of any fund in existence. Also one star from Morningstar.

SEI Opportunistic Income Fund (ENIAX, a great computer): 3.2% APR, max DD of 0.9%, nine-month recovery, Sharpe 2.65
Zeo Strategic Income (ZEOIX): 3.4% APR, max DD of 1.5%, five-month recovery, Sharpe 2.57
JPMorgan Limited Duration Bond (HLGFX): 2.3% APR, max DD of 0.6%, six-month recovery, Sharpe 2.42.
BlackRock Allocation Target Shares (BRASX): 2.5% APR, max DD of 1.4%, six-month recovery, Sharpe 2.20
Metropolitan West Strategic Income (MWSTX): 4.2% APR, max DD of 1.4%, six-month recovery, Sharpe 2.10
Transamerica Short-Term Bond (ITAAX): 2.5% APR, max DD of 1.0%, five-month recovery, Sharpe 2.10

SEI Enhanced Income Fund (SEEAX): 2.3% APR, max DD of 1.8%, 13-month recovery, Sharpe 1.90
Wells Fargo Short-Term High Yield Bond (SSTHX): 3.2% APR, 1.6% max DD, five-month recovery, Sharpe 1.75
Gabelli ABC (GABCX): 3.1% APR, 1.9% max DD, five-month recovery, Sharpe 1.52

For what interest that holds,

David

VintageFreak

Thank you Mr. Snowball.

I opine...

SSTHX - out of the reckoning on first principles. Wells Fargo...FAR GO I.
GABCX - Succession issues.
ZEOIX - not available at Brokerages (I know, I know, I'm being picky)
MWSTX - Just look at the chart and see what happened in 2008. No sirreee...
ENIAX, SEEAX - $100,000K minimum. Nope
ITAAX - After Dot Com Bust can't look at this fund company ever again, just like can't look at Invesco ever again
HLGFX - $1MM minimum, so looked at ONUAX which dropped a M*, then looked at chart around 2008. Nope dee doo.
RPHIX - I own RPHYX
BRASX - BATAX may be more accessible to buy, but BRASX is Corporate Bond and BATAX is Intermediate Bond, and someone please put M* out of business.

So all in all, ZEOIX is it for me looks like...

Question - Where do I get max DD numbers if MFO does not track fund. I own IRNIX and wanted to see how it did. Rolling returns on 1 year basis at M* not looking too bad at first glance, but I'm worried I am not evaluating correctly.

Finally - I also own FPNIX. Thinking RPHYX, RSIVX, IRNIX, FPNIX - I should just chill out.

claimui

VintageFreak said:

ZEOIX - not available at Brokerages (I know, I know, I'm being picky)

ZEOIX is available at Fidelity, Schwab, Scottrade, TDA, and Vanguard according to Morningstar: http://financials.morningstar.com/fund/purchase-info.html?t=ZEOIX&Country=usa

VintageFreak

claimui said:

VintageFreak said:

ZEOIX - not available at Brokerages (I know, I know, I'm being picky)

ZEOIX is available at Fidelity, Schwab, Scottrade, TDA, and Vanguard according to Morningstar: http://financials.morningstar.com/fund/purchase-info.html?t=ZEOIX&Country=usa

In my country and planet it is crime to pay a TF for purchasing mutual funds.

David_Snowball

Hi, VF.

We do track IRINX. The key is that it's not the fund's oldest share class and looking for the OSC is a default setting on the screener. If you go to the screener and click "show all share classes" instead of "show just OSC," then enter Iron Strategic as the fund, you'll see both classes side by side.

Here are the five-year numbers for IRINX, the investor class shares.

Iron Strategic Income (IRINX): 2.6% APR, 7.7% maxDD, recovery period over 30 months, Sharpe 0.73.

David

00BY

There is no free lunch. You pay for it one way or another, 12b1 or TF. pick your poison

bee

00BY said:

There is no free lunch. You pay for it one way or another, 12b1 or TF. pick your poison

I would add that some TF fund share classes can actually be cheaper than their NTF brethren. Compare an NTF share class (ER) with the combined cost of (TF fee + TF ER). The TF ER is often lower enough to make this the better long term selection.

Also, many brokerage houses will allow investors to set up periodic withdrawals and periodic contributions so that future sales / purchases of shares are TF free. I have done this successfully with many TF funds at USAA brokerage.

@VintageFreak, I have used the Portfolio Visualizer website to acquire Max DD and Recovery time data.

Here's the link.
https://portfoliovisualizer.com/backtest-portfolio

Here is what IRNIX details:

VintageFreak

Err..7.7 that sucks. Need to evaluate IRNIX investment.

Sven

We need to pay attention to the expense ratios for these "cash equivalents". ERs above 1% quickly eat into the lowly 2% total return. That is not counting if they are transaction fee mutual funds.

davidrmoran

Huh? Typically the 2% TR or whatever it is includes the ERs, no?

VintageFreak

Yes. Returns are always after expenses. Perhaps he meant to say a fund earning 2% overcoming a 1% ER will find it hard to do it year after year. The lower the expectations on returns, the more likely they are to be met, the lower the ER.

I'm guessing...

psuche98

Very good information. Thank you David!