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Has anyone looked at PSYPX or SEMRX? has some interesting commentary about their approaches.

These people (Palmer Square) run PSYPX
When you look at their 'team' they are a lot of smart people - all about 40-45 years old.
They try to focus on credit markets - on the other hand they took a beating in the later part of 2015, early 2016, or later 2016.
I think that the June 2015 podcast is interesting --- where they try to paint how difficult a time it was.
Did they learn from their mistakes? Well, they've made a big comeback but SEMRX looks steadier.
Right now PSYPX is heavily in Fannie Mae paper - altho' it is a small enough fund to be more nimble.

SEMRX lost several of their managers near the end of 2016 (one of whom, Vesta Marks, went to PSYPX)
The lead mgr has been there since inception - but loss of 4 other mgrs raises questions.
SEMIX(inst. class) /SEMRX (non inst. class) also has a lot of collateralized mortgage obligations --- more circuitous than straight fannie mae.


  • FWIW, given the fund's big manager turnover and rather high expenses for mostly AAA-rated debt, and lack of asset base ($9 million), I would look elsewhere. Vanguard's VFSUX has a better long-term record for teeny expenses. Yeah, Vanguard has higher duration, but that really applies to more sudden jumps in interest rates rather than the 0.25% moves we have seen the last two years. If I want to pay what SEMRX charges, I would own OSTIX for higher yield and much longer management experience.
  • edited August 2017
    Why would you be interested in investing in SEMRX as compared to RPHIX, which looks more steady and gives twice as large returns?
  • Looking at PSYPX, it looks like they take an extremely aggressive approach in working spreads (the difference between yields of differently rated but otherwise similar bonds), while trying to eliminate interest rate risk.

    They do this largely with floaters, and also by hedging fixed rate bonds (e.g. with offsetting shorts - which affects costs and I suspect turnover rate). Junkster has written several posts talking about credit risk with junk bonds and how he watches this. PSYPX seems to focus on that same credit risk, though over a much wider variety of credit ratings and using lots of different devices to manage it.

    It's an interesting idea and IMHO somewhat different. Eliminating interest rate risk to focus solely on credit risk might be analogized to foreign investing while hedging currency.

    Though ISTM that unlike foreign currency hedging where currency markets may be decoupled from nations' stock markets, credit and interest risk may be more intertwined. I understand that from a mathematical perspective, the two pricing factors may be treated independently. What I am less comfortable with is the idea that some event, some factor, could affect one dimension of the yield curve (say, spread) without also affecting another dimension (interest rates). Are they boxing themselves in by not considering both effects?

    I'm also not enthralled by their explanation for their large 2015-2016 dip, even though the fund ultimately made up the loss and much more. "The market sold off for technical reasons" is leaving me wondering what other factors could sidetrack the fund.
  • A little bit more about that 2015-2016 dip. From M*'s article "Your Bond Fund Could Be Riskier Than It Looks" (linked to by Ted)

    "the trailing five-year period through July 31, 2017, includes only one stressful period for high-yield corporates: June 2015 through February 2016. That was mainly confined to energy and metals and mining firms. ... What if, instead of rebounding in February 2016, oil prices had continued to plunge, or just settled at a much lower floor, pushing more high-yield bond issuers into financial distress? Was this scenario more or less likely than what actually occurred? Risk isn't just what happened (volatility); it's what could have happened but didn't."

    From the video, it sounds like this fund had been investing in low rated bonds and got burned in the only time during its lifetime that this section of the market hiccuped. At least as of Jan 31, the fund was still over 50% in BBB or lower-rated bonds. (Jan 31, 2017 annual report). This was after moving the fund into higher quality bonds (per annual report).

    Are they managing credit risk well? Are the high returns so far (despite the volatility) due to skill or simply holding mostly junk and near junk?
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