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Hard to see over 10/5/3/1y why you would ever want it over FTBFX (slightly less volatility, I suppose), much less FSICX and / or PONDX (similar risk rating). I did not check the Metwest and Doubleline competition.
DODIX vs. FTBFX: Assuming past is prologue (a not so great assumption), and given that these are two relatively vanilla intermediate term bond funds, M* star ratings should fairly well encapsulate their relative risk-adjusted performance. 5 star vs. 4 star.
Likewise, Lipper rates the former more highly: 5/5/5/2/5 vs. 5/5/4/1/4 (better in preservation, tax efficiency, and cost, respectively)
The better M* rating is due to D&C's lower risk - average vs. above average (determined in part, but not exclusively, by volatility). As noted, performance has been similar (within 0.10% annualized) over 3, 10, and 15 year periods, though D&C has outperformed by 1/4% annualized over the past five year span.
Similar SEC yields (2.59% vs. 2.62) with similar average credit ratings (BBB per M*) yet significantly lower average duration (4.20 years vs. 5.39 years). Important as rates begin to rise.
Big difference in turnover (27% vs. 137%).
I'll go along with Hank on trust in company, even though FMR, LLC is also privately held (49% of voting shares controlled by Johnson family)
Lipper aggregated rating is the same (ML uses that one), for some reason. As are their 10y M* ratings. Interesting that 0.02% ER difference (if I am reading it right) impacts both Lipper and M* fee ratings, a single rating level change. I suppose you have to draw a line somewhere. I cannot see any period other than 3y and 15y where Fido outperforms, so I should have written that it's hard to see why you would prefer D&C unless all other variables are equal (xaction fee absence). In other words if you used Fido only then you would not have much reason to prefer D&C. Still, a somewhat puzzling article.
If all you care about is that raw performance, and you don't think that positioning a bond fund defensively now (while achieving the same performance) is an advantage, then sure, save five bucks (the cost of buying additional shares of DODIX at Fidelity) and invest in FTBFX.
I've supported the argument that "you can't eat risk-adjusted returns." So I'm not unsympathetic to the argument that one might reasonably ignore all but the first of the five Lipper ratings. However, all else being equal (or within $5 of equal), I would take the equal performing fund with the lower risk.
From M*: DODIX's "duration ... has historically run short of [AGG's]". FTBFX's managers "aim to keep duration close to ... [AGG's]."
Even for a Fidelity-only investor, once one is in the disinvesting stage, there's little to no cost in holding a TF fund - no cost to sell or reinvest, and at worst the occasional nominal fee to rebalance.
What is this 5 bucks you mention? For fidelity i believe that only applies to etf and stock trades. Mutual fund trades have a different set of price points
ETFs and stocks cost $4.95 to buy or to sell, or about ten bucks round trip.
TF funds, once you have a position, can usually be purchased for $5 and sold for free, a round trip cost of exactly five bucks. You have to use their automatic investment system.
That requires you to schedule two or more investments, but it allows you to cancel at any time. So when you want to buy, you schedule your purchase (plus subsequent dummy ones), you wait for the first scheduled investment to be processed, and cancel the remaining ones.
Fidelity does not charge a fee for automatic investments in Fidelity funds or No Transaction Fee (NTF) FundsNetwork funds. After the initial investment, a $5 fee is charged per automatic investment into a FundsNetwork transaction fee fund.
"? You are saying Fidelity does not deploy the defensiveness savvy of D&C? That would show up in risk measures, right"
I am saying (and quoting M* to the same effect) that D&C consistently maintains a shorter (i.e. more interest rate risk defensive) position than does Fidelity. If you want to characterize that as savvy rather than mechanical, that's one way of looking at it, especially in a rising interest rate environment. IMHO, a "savvy" fund would vary duration based on market conditions. But that could be viewed as savvy in an aggressive sense.
My investment philosophy has been to (try to) be pound wise, rather than penny foolish. I'll invest in institutional shares and eat the $5 fees, rather than pay a fund company an extra 0.25%/year in order to avoid a five hundred penny toll. I would not look at a retail share class like PONDX when I could instead invest in an institutional share class like PIMIX and save money in the long run.
(PIMIX has a $25K min at Vanguard, with fees of $8/trade for Voyager Select and probably free for Flagship customers. "anywhere else" would seem to include Vanguard.)
Supposedly both funds vary duration based on market conditions, right?; it is not written in their charters otherwise, I think. They are supposed to be tactical about these things. Fido is typically slightly more aggressive / bullish in all respects than other shops, in my experience. Though I am surprised FPURX gets little love here.
Sure about penny foolishness; for me it's always is a matter of 'long run.' I just historically have often not held funds quite long enough, or in large enough amounts, to warrant paying $50. In my mind anyway, meaning I want the option to bail sooner than later, feeling the pressure to hold since I already paid. You may well be immune to such self-pressure. It was something I learned vividly 02-09.
Have never used Vanguard, have been trying to simplify and reduce holdings and institutions.
"Supposedly both funds vary duration based on market conditions, right?; it is not written in their charters otherwise, I think." FTBFX prospectus: "The Adviser uses the Bloomberg Barclays U.S. Universal Bond Index as a guide in structuring the fund and selecting its investments. The Adviser uses the index as a guide in allocating the fund's assets across the investment-grade, high yield, and emerging market asset classes. The Adviser manages the fund to have similar overall interest rate risk to the index."
Oh, come on. Of course. (It is not like you to be disingenuous about 'non-charter' / 'guidance' prospectus boilerplate.) As someone who's written and edited bond prospectuses, including for Fido, I know when such boilerplate is malleable, to put it mildly. But you know that also. Managing to index risk while markedly outperforming IUSB since its inception shows real alpha, no? Boy, there must be something going on beyond the FTBFX prospectus text.
Did you read the DODIX 'principal investment strategies'?
What was the point here? (One outcome is it also speaks to the recent excellence of DODIX with slightly lower fee and slightly less volatility and good match or slight outperformance.)
Now you're just getting silly. "Non-charter" indeed. I took your use of the term "charter" to be a colloquial reference to the prospectus. Of course the prospectus isn't the charter. In fact, Fidelity funds don't even have charters, because they're organized as trusts, with declarations of trust. FTBFX is a series of the Salem Street Trust. Other funds are organized as corporations with articles of incorporation, otherwise known as charters. http://www.klgates.com/files/Upload/DC_IM_03-Organizing_Mutual_Fund.pdf
Maybe you were thinking of fundamental investment policies (which cannot be changed without shareholder approval). However, fundamental or not, investment restrictions must be followed until changed.
We both recognize that prospectuses tend to offer great leeway in meeting a fund's broad investment objective (e.g. this fund invests in equities to make money). That's especially true of Fidelity prospectuses, which tend to be exercises in vapidity. That is why it was so surprising to find the relatively clear, prescriptive statement about managing interest rate risk for FTBFX.
I believe you misread the paragraph, as you found the flexible term "guidance" to apply not only to the allocation of securities (investment grade, junk, emerging market), but to the requirement that interest rate risk be similar to the index. That this is an incorrect reading can be discerned not just from the construction of the paragraph, but from the fact that these two sentences are given as separate bullet items (with another bullet item in between them) in the list of principal investment strategies.
The point remains that DODIX has and will generally have shorter duration. IMHO this makes DODIX the superior investment in the current market environment.
You attempted to refute the duration assertion by suggesting that neither fund's duration was constrained by its "charter". While it is true that an interest rate risk "similar" to an index need not match the index to the last decimal place, this nevertheless constitutes a substantial constraint on the fund.
I had no need to delve into the DODIX prospectus, as I felt I had adequately addressed your claim that neither fund's "charter" imposed any constraint on interest rate risk. Regardless, whether such a legal constraint exists is immaterial; I addressed your side issue as a courtesy. All that matters is how they are managed in fact.
That gets us right back to M*'s statements (quoted above) that FTBFX keeps close to the index duration, and DODIX has historically kept a shorter duration. While that does imply that DODIX has the flexibility to increase its duration significantly, it has shown no inclination to do so.
One of my favorite de jure/de facto comparisons is between the Mutual Series (e.g. MDISX, MQIFX) prospectuses and the way Michael Price ran those funds. If you read the prospectuses, you might think that anyone investing in these funds was taking a wild gamble - the prospectuses allowed, even encouraged, really aggressive investing. Yet the way the funds were managed they were some of the most sedate funds around. One invested in them for the way they were managed, not for what the prospectus would enable a lunatic manager to do.
Jeez. Your condescending 'courtesy' to me aside, plus impugning of my supposed misreading and refutation and silliness, perhaps you can speculate on how FTBFX delivers the alpha it does (or perhaps you disagree), given its, well, let me use your wording, restrictions, requirements, and constraints.
Shoot, I should have anticipated more hairsplitting: 'The excess return of an investment relative to the return of a benchmark index is the investment's alpha.' And more insulting, now irrelevance in addition to silliness.
What I wrote was not bald preferring, just that it was 'hard to see' why one would want DODIX, per the article. I thought it was an interesting question given the Fido lower rating. Why do you think one would or should want D&C instead? Second, why do you suppose FTBFX outperforms IUSB? The funds' names are 'income' and 'total'. Nothing about short or intermediate durations. Money/USN notes this:
This fund’s ability to venture into high-yield and emerging-market debt differentiates it from more typical corporate bond funds. ... [As for its index] Here, too, fund performance has bested that of the [Barclays U.S. Universal Bond] index.
@davidrmoran and @msf, not to offend but your banter back and forth does make me chuckle. Kind of like arguing with yourself in the mirror (but I'm guessing you don't see it).
This is a thread about DODIX. If you want to talk about another fund in a different context, i.e. that fund's performance/investment strategy without comparing it to DODIX's, that is irrelevant to DODIX. There's always the option of starting another thread.
At least in this last post, you got back to asking about why one would prefer DODIX over fund X.
What you wrote was not bald preferring, it was preferring within a context unstated at that point - that you won't plunk down $5 to get a comparably performing (superior on a risk-adjusted basis) fund, or complicate life by simply buying (not even holding) something "for free" elsewhere (outside of Fidelity). Unless that elsewhere is ML.
You make tradeoffs between simplification, costs, and performance that are personal to you. You're the only one who can address those.
I don't want a fund that is required to keep its duration on a leash. Not simply by using its benchmark as a starting point to inform (i.e. as "guidance"), but by keeping it close ("similar"). I'll repeat that this isn't just my interpretation but M*'s as well. However, M* also misread the prospectus - a fact I missed the first time.
The analyst wrote: "Ford O'Neil and the management team aim to keep duration close to their bogy, the Bloomberg Barclays U.S. Aggregate Bond Index. They avoid duration bets ..." The prospectus does name the Aggregate Bond Index as one of two fund benchmarks (as reflected in its average annual returns table), the other being the U.S. Universal Bond Index. It is the latter, not the former, to which the fund must keep duration close ("similar").
For a variety of reasons, including its relative duration inflexibility, FTBFX isn't a fund high up on my list to research (it's lower than most of the other 2016 M* fixed income manager finalists).
That said, bond portfolio management isn't rocket science. There are lots of different attributes that one can adjust. For instance, even a cursory look at FTBFX's portfolio reveals how it is playing the yield curve while keeping its duration within its required window of similarity. Whether that particular decision has helped or hurt the fund (or had no effect), you can research yourself. Same with average credit quality and credit distribution among holdings, sector selection, etc.
All deviate from the US Universal Bond Index. At least some of them must accounti for the fund's higher risk relative to DODIX, without adding to performance. As the saying goes, past performance does not guarantee future results.
@MikeM - yeah, we're both being a bit pedantic here. Though there are differences, notably that I've no horse in this race, so I'm not looking to validate FTBFX (or to discredit it).
It's got its virtues. It's smaller than DODIX (though at $30B+, I'm not sure that makes a difference). In some respects it's more aggressive (why get an actively managed fund that's going to just lie there?).
Though part of that is simply a matter of recognizing that it's a core plus fund. If that's your objective, one should be comparing it to funds like BCOIX (another five star, lower cost competitor, and another 2016 M* fixed income manager finalist).
Fido says $75 TF to plunk down for DODIX, $5 each reinvestment if auto, for small outperformance (and depending on time period) at twice the size and way less turnover. Right, for some aspects anyone can research preferability.
The $5 is for each investment, not reinvestment. Automatic reinvestments at Fidelity, as at most brokerages, are provided as a free service. (I've recently seen a brokerage where ETF reinvestments cost money, so there is a reason for this clarification.)
Fidelity requires you to have an existing position to use their automated $5 investment service. But Fidelity doesn't require you to plunk down $75 to create that initial position, so long as you come up with the shares in your account. I believe you're already set up to bootstrap a new position for twenty bucks using existing accounts.
At the risk of repeating myself, only you can say whether paying $20 while not expanding the institutions you use (e.g. not going to Vanguard) is too high a cost for you. You have already made it clear that holding the shares at no monetary cost directly with D&C is too high an operational cost for you.
BCOIX is $50 TF at Fido, but it says $25k min (self retirement accounts $500). PONDX, arguably better than any of these, is free, or, as noted if you're sure you're going to hold for the long run, PIMIX.
Regarding PONDX: It's different, not comparable and so not better (or worse). As already noted, such investments may make sense if all one cares about is raw performance, though past performance yada yada.
- Taken to the extreme, comparing it to DODIX (as you did originally) or to BCOIX is somewhat like comparing a junk bond fund to a Treasury fund
- PONDX is at its heart an MBS fund, which will usually do better (due to risk premium) over full cycles
- it appears to be heavily leveraged (-48.57% net short term duration investments; see Excel cell AQ18 here) which entails another set of risks; and
- The fund owes much to having been in the right place at the right time; time is up and there are no other right places. See this M* column. It's a good column touching on several points, that apparently got little attention here, as it is sitting in the bullpen.
Different strokes for different folks. No disrespect to @davidmoran, but IMHO it doesn’t get any better than the thorough research, breadth of knowledge, and attention to detail @msf brings to the board. Some like myself who sit and sit on our investments (rather than trading) come here primarily to enjoy this kind of academic dialogue.
Academic has several meanings. My favorite: “hypothetical or theoretical and not expected to produce an immediate or practical result”
?? It is unlike you to misunderstand or misread something so. Unless of course I'm mistaken again. Changing class within Doubleline shows how to avoid or reduce TF on DODIX? Can you share the exact steps to achieve this wrt D&C? I am missing something. Unless conceivably you did.
As for the heart of PONDX, check its top sectors at M*. (As of midyear.) You like to cite M* sometimes. But that article is fascinating. '... while we expect PIMCO Income to remain a very attractive option, the level of its past success is likely to be almost impossible to replicate...' Okay. Does it shortchange PONDX flexibility and adaptability? Regardless, appreciate tip that PONDX time is up and there are no other right places; lots of people better bail.
@hank, concur in take on msf work; you take your life in your hands querying or even responding.
Good question @expatsp. I’ll be interested in @msf’s response as well.
Another thought here ... Where does one draw the line in classifying a fund as a bond fund? I think that’s more than academic and results in a lot of confusion among investors. I guess, technically, an ultra-short like TRBUX is a bond fund. Yet, its risk/reward profile is markedly different from a long-term treasury fund, an intermediate-term muni, or a high yield fund. All are bond funds - but quite different.
FWIW - I own DODIX, but actually count it along side my cash positions. D&C doesn’t even offer a money market fund. They call DODIX an income fund. Of course it invests in bonds. Another I own and puzzle over is RPSIX. It may correctly be termed bond fund. But due to the very diverse mix of bond funds it holds, along with as much as 15% or more in a dividend paying stock fund, it displays a much different type of behavior than an intermediate or long-term corporate or treasury fund. In a bond rout, I’d feel safer holding RPSIX than a plain vanilla bond fund.
Too long winded here - In a nutshell: Should we distinguish between bond funds and an income fund like DODIX?
BCOIX is $50 TF at Fido, but it says $25k min (self retirement accounts $500). PONDX, arguably better than any of these, is free, or, as noted if you're sure you're going to hold for the long run, PIMIX.
?? It is unlike you to misunderstand or misread something so. Unless of course I'm mistaken again. Changing class within Doubleline shows how to avoid or reduce TF on DODIX? Can you share the exact steps to achieve this wrt D&C? I am missing something. Unless conceivably you did.
What you missed is what you last posted - transaction fees on Baird Core Plus and PIMCO Income Funds' institutional class shares. This shows why I suggested that if you want to talk about other funds outside of DODIX, it would be a good idea to do that in a different thread. Everything gets mixed together and confused in this DODIX thread.
As for the heart of PONDX, check its top sectors at M*. (As of midyear.)
For the sake of argument, let's grant your implication (that I was mistaken about PONDX being built around MBS). That doesn't diminish the other concerns I raised regarding this fund.
When I see people ask whether they should invest in a multisector fund or a short term fund or a core fund, one of the first questions that comes to mind is "what are you looking for", since these serve different functions and behave differently. They are simply different animals.
If one's objective is to goose yield, one can buy a leveraged fund. Most of those are closed end funds, so that's a good starting place. People seem to be happy with the boost they get from the leverage until they get burned, if they get burned. ("Industry studies show that over a long period of time, the benefits of leverage outweigh the drawbacks.") One can also buy OEFs that use leverage, like PONDX.
That gets us to your snapshot in time glance at its portfolio. Comparing the March 2015 annual report data with the 2017 annual report (from the M* site), one sees a big shift that comes in two parts: - borrowing heavily: $1.9B liabilities vs. $46B assets(2015) compared with $27B liabilities vs. $106B assets (2017), - using that debt to buy government bonds ($0 Treasuries in 2015, 25.2% Treasuries in 2017).
That's almost a dollar for dollar pairing. Honestly, I'm surprised the numbers work out that way. Nothing in real life is supposed to be that neat. But it seems that that the fund is continuing to focus on securitized debt for its core investments. Leverage is being used on the side to boost returns.
You're comfortable with increased leverage in a rising interest rate environment. I'm not. Sometimes it can still work, depending on how the yield curve moves - how fast and how the slope/curvature changes. Sometimes you can get badly burned. Best of luck.
Comments
A .43% ER
A core of stable long-term investors
Privately held (probably more independent)
Assuming past is prologue (a not so great assumption), and given that these are two relatively vanilla intermediate term bond funds, M* star ratings should fairly well encapsulate their relative risk-adjusted performance. 5 star vs. 4 star.
Likewise, Lipper rates the former more highly: 5/5/5/2/5 vs. 5/5/4/1/4 (better in preservation, tax efficiency, and cost, respectively)
The better M* rating is due to D&C's lower risk - average vs. above average (determined in part, but not exclusively, by volatility). As noted, performance has been similar (within 0.10% annualized) over 3, 10, and 15 year periods, though D&C has outperformed by 1/4% annualized over the past five year span.
Similar SEC yields (2.59% vs. 2.62) with similar average credit ratings (BBB per M*) yet significantly lower average duration (4.20 years vs. 5.39 years). Important as rates begin to rise.
Big difference in turnover (27% vs. 137%).
I'll go along with Hank on trust in company, even though FMR, LLC is also privately held (49% of voting shares controlled by Johnson family)
As are their 10y M* ratings.
Interesting that 0.02% ER difference (if I am reading it right) impacts both Lipper and M* fee ratings, a single rating level change. I suppose you have to draw a line somewhere.
I cannot see any period other than 3y and 15y where Fido outperforms, so I should have written that it's hard to see why you would prefer D&C unless all other variables are equal (xaction fee absence). In other words if you used Fido only then you would not have much reason to prefer D&C.
Still, a somewhat puzzling article.
Lipper rates on five attributes:
Total Return/Consistent Return/Preservation/Tax Efficiency/Expense.
"Unlike Morningstar or U.S. News, Lipper doesn't award an aggregate rating to mutual funds or ETFs." Investopedia, Understanding Lipper Ratings in Mutual Funds
What ML is doing is giving you just the first of those five attribute ratings - raw performance:
"Rating based on Total Return and reflects fund historic total return performance relative to peers"
https://olui2.fs.ml.com/RIMutualFundsUI/RIMFOverview.aspx?Symbol=FTBFX
If all you care about is that raw performance, and you don't think that positioning a bond fund defensively now (while achieving the same performance) is an advantage, then sure, save five bucks (the cost of buying additional shares of DODIX at Fidelity) and invest in FTBFX.
I've supported the argument that "you can't eat risk-adjusted returns." So I'm not unsympathetic to the argument that one might reasonably ignore all but the first of the five Lipper ratings. However, all else being equal (or within $5 of equal), I would take the equal performing fund with the lower risk.
From M*: DODIX's "duration ... has historically run short of [AGG's]". FTBFX's managers "aim to keep duration close to ... [AGG's]."
Even for a Fidelity-only investor, once one is in the disinvesting stage, there's little to no cost in holding a TF fund - no cost to sell or reinvest, and at worst the occasional nominal fee to rebalance.
TF funds, once you have a position, can usually be purchased for $5 and sold for free, a round trip cost of exactly five bucks. You have to use their automatic investment system.
That requires you to schedule two or more investments, but it allows you to cancel at any time. So when you want to buy, you schedule your purchase (plus subsequent dummy ones), you wait for the first scheduled investment to be processed, and cancel the remaining ones. https://www.fidelity.com/cash-management/automatic-investments
? You are saying Fidelity does not deploy the defensiveness savvy of D&C? That would show up in risk measures, right
I guess Fido is almost always more bullish, even if only slightly, than other shops.
Missed that ML listed only the Lipper Returns star, tnx.
Rightly or wrongly, part of my investment philosophy has always been not paying any buy or sell fees on any tradem, ML, Fido, or anywhere else.
I am saying (and quoting M* to the same effect) that D&C consistently maintains a shorter (i.e. more interest rate risk defensive) position than does Fidelity. If you want to characterize that as savvy rather than mechanical, that's one way of looking at it, especially in a rising interest rate environment. IMHO, a "savvy" fund would vary duration based on market conditions. But that could be viewed as savvy in an aggressive sense.
My investment philosophy has been to (try to) be pound wise, rather than penny foolish. I'll invest in institutional shares and eat the $5 fees, rather than pay a fund company an extra 0.25%/year in order to avoid a five hundred penny toll. I would not look at a retail share class like PONDX when I could instead invest in an institutional share class like PIMIX and save money in the long run.
(PIMIX has a $25K min at Vanguard, with fees of $8/trade for Voyager Select and probably free for Flagship customers. "anywhere else" would seem to include Vanguard.)
Sure about penny foolishness; for me it's always is a matter of 'long run.' I just historically have often not held funds quite long enough, or in large enough amounts, to warrant paying $50. In my mind anyway, meaning I want the option to bail sooner than later, feeling the pressure to hold since I already paid. You may well be immune to such self-pressure. It was something I learned vividly 02-09.
Have never used Vanguard, have been trying to simplify and reduce holdings and institutions.
FTBFX prospectus: "The Adviser uses the Bloomberg Barclays U.S. Universal Bond Index as a guide in structuring the fund and selecting its investments. The Adviser uses the index as a guide in allocating the fund's assets across the investment-grade, high yield, and emerging market asset classes. The Adviser manages the fund to have similar overall interest rate risk to the index."
Did you read the DODIX 'principal investment strategies'?
What was the point here? (One outcome is it also speaks to the recent excellence of DODIX with slightly lower fee and slightly less volatility and good match or slight outperformance.)
http://www.klgates.com/files/Upload/DC_IM_03-Organizing_Mutual_Fund.pdf
Maybe you were thinking of fundamental investment policies (which cannot be changed without shareholder approval). However, fundamental or not, investment restrictions must be followed until changed.
We both recognize that prospectuses tend to offer great leeway in meeting a fund's broad investment objective (e.g. this fund invests in equities to make money). That's especially true of Fidelity prospectuses, which tend to be exercises in vapidity. That is why it was so surprising to find the relatively clear, prescriptive statement about managing interest rate risk for FTBFX.
I believe you misread the paragraph, as you found the flexible term "guidance" to apply not only to the allocation of securities (investment grade, junk, emerging market), but to the requirement that interest rate risk be similar to the index. That this is an incorrect reading can be discerned not just from the construction of the paragraph, but from the fact that these two sentences are given as separate bullet items (with another bullet item in between them) in the list of principal investment strategies.
The point remains that DODIX has and will generally have shorter duration. IMHO this makes DODIX the superior investment in the current market environment.
You attempted to refute the duration assertion by suggesting that neither fund's duration was constrained by its "charter". While it is true that an interest rate risk "similar" to an index need not match the index to the last decimal place, this nevertheless constitutes a substantial constraint on the fund.
I had no need to delve into the DODIX prospectus, as I felt I had adequately addressed your claim that neither fund's "charter" imposed any constraint on interest rate risk. Regardless, whether such a legal constraint exists is immaterial; I addressed your side issue as a courtesy. All that matters is how they are managed in fact.
That gets us right back to M*'s statements (quoted above) that FTBFX keeps close to the index duration, and DODIX has historically kept a shorter duration. While that does imply that DODIX has the flexibility to increase its duration significantly, it has shown no inclination to do so.
One of my favorite de jure/de facto comparisons is between the Mutual Series (e.g. MDISX, MQIFX) prospectuses and the way Michael Price ran those funds. If you read the prospectuses, you might think that anyone investing in these funds was taking a wild gamble - the prospectuses allowed, even encouraged, really aggressive investing. Yet the way the funds were managed they were some of the most sedate funds around. One invested in them for the way they were managed, not for what the prospectus would enable a lunatic manager to do.
"Hard to see over 10/5/3/1y why you would ever want it over FTBFX"
Edit: I disagree that you have demonstrated alpha (the existence of which depends upon correlation and beta, neither of which you've presented).
What I wrote was not bald preferring, just that it was 'hard to see' why one would want DODIX, per the article. I thought it was an interesting question given the Fido lower rating. Why do you think one would or should want D&C instead? Second, why do you suppose FTBFX outperforms IUSB? The funds' names are 'income' and 'total'. Nothing about short or intermediate durations. Money/USN notes this:
This fund’s ability to venture into high-yield and emerging-market debt differentiates it from more typical corporate bond funds. ... [As for its index] Here, too, fund performance has bested that of the [Barclays U.S. Universal Bond] index.
So I thought you might have more interesting things to say about this lower-rated fund. Almost 2y ago the manager was interviewed:
https://www.barrons.com/articles/morningstar-talks-fidelitys-fixed-income-outlook-for-2016-1455898972
Since then he was named M* FI MoY, it says.
I guess I will see if this last-January interview of him and Pohl (DODIX) reveals anything:
https://www.cnbc.com/video/2017/01/25/meet-morningstars-best-bond-fund-and-asset-allocation-fund-managers.html
Edit: Not all that much, except for the usual Fidelity touting of their specificity of bondpicking, more than any macro guidelines.
At least in this last post, you got back to asking about why one would prefer DODIX over fund X.
What you wrote was not bald preferring, it was preferring within a context unstated at that point - that you won't plunk down $5 to get a comparably performing (superior on a risk-adjusted basis) fund, or complicate life by simply buying (not even holding) something "for free" elsewhere (outside of Fidelity). Unless that elsewhere is ML.
You make tradeoffs between simplification, costs, and performance that are personal to you. You're the only one who can address those.
I don't want a fund that is required to keep its duration on a leash. Not simply by using its benchmark as a starting point to inform (i.e. as "guidance"), but by keeping it close ("similar"). I'll repeat that this isn't just my interpretation but M*'s as well. However, M* also misread the prospectus - a fact I missed the first time.
The analyst wrote: "Ford O'Neil and the management team aim to keep duration close to their bogy, the Bloomberg Barclays U.S. Aggregate Bond Index. They avoid duration bets ..." The prospectus does name the Aggregate Bond Index as one of two fund benchmarks (as reflected in its average annual returns table), the other being the U.S. Universal Bond Index. It is the latter, not the former, to which the fund must keep duration close ("similar").
For a variety of reasons, including its relative duration inflexibility, FTBFX isn't a fund high up on my list to research (it's lower than most of the other 2016 M* fixed income manager finalists).
That said, bond portfolio management isn't rocket science. There are lots of different attributes that one can adjust. For instance, even a cursory look at FTBFX's portfolio reveals how it is playing the yield curve while keeping its duration within its required window of similarity. Whether that particular decision has helped or hurt the fund (or had no effect), you can research yourself. Same with average credit quality and credit distribution among holdings, sector selection, etc.
All deviate from the US Universal Bond Index. At least some of them must accounti for the fund's higher risk relative to DODIX, without adding to performance. As the saying goes, past performance does not guarantee future results.
It's got its virtues. It's smaller than DODIX (though at $30B+, I'm not sure that makes a difference). In some respects it's more aggressive (why get an actively managed fund that's going to just lie there?).
Though part of that is simply a matter of recognizing that it's a core plus fund. If that's your objective, one should be comparing it to funds like BCOIX (another five star, lower cost competitor, and another 2016 M* fixed income manager finalist).
Fidelity requires you to have an existing position to use their automated $5 investment service. But Fidelity doesn't require you to plunk down $75 to create that initial position, so long as you come up with the shares in your account. I believe you're already set up to bootstrap a new position for twenty bucks using existing accounts.
At the risk of repeating myself, only you can say whether paying $20 while not expanding the institutions you use (e.g. not going to Vanguard) is too high a cost for you. You have already made it clear that holding the shares at no monetary cost directly with D&C is too high an operational cost for you.
BCOIX is $50 TF at Fido, but it says $25k min (self retirement accounts $500). PONDX, arguably better than any of these, is free, or, as noted if you're sure you're going to hold for the long run, PIMIX.
https://mutualfundobserver.com/discuss/discussion/comment/77431/#Comment_77431
Regarding PONDX: It's different, not comparable and so not better (or worse). As already noted, such investments may make sense if all one cares about is raw performance, though past performance yada yada.
- Taken to the extreme, comparing it to DODIX (as you did originally) or to BCOIX is somewhat like comparing a junk bond fund to a Treasury fund
- PONDX is at its heart an MBS fund, which will usually do better (due to risk premium) over full cycles
- it appears to be heavily leveraged (-48.57% net short term duration investments; see Excel cell AQ18 here) which entails another set of risks; and
- The fund owes much to having been in the right place at the right time; time is up and there are no other right places. See this M* column. It's a good column touching on several points, that apparently got little attention here, as it is sitting in the bullpen.
Different strokes for different folks. No disrespect to @davidmoran, but IMHO it doesn’t get any better than the thorough research, breadth of knowledge, and attention to detail @msf brings to the board. Some like myself who sit and sit on our investments (rather than trading) come here primarily to enjoy this kind of academic dialogue.
Academic has several meanings. My favorite: “hypothetical or theoretical and not expected to produce an immediate or practical result”
Regards
>> It looks like you may be forgetting things. Here's your own post on how to circumvent that fee at Fidelity:
https://mutualfundobserver.com/discuss/discussion/comment/77431/#Comment_77431
?? It is unlike you to misunderstand or misread something so. Unless of course I'm mistaken again. Changing class within Doubleline shows how to avoid or reduce TF on DODIX? Can you share the exact steps to achieve this wrt D&C? I am missing something. Unless conceivably you did.
As for the heart of PONDX, check its top sectors at M*. (As of midyear.) You like to cite M* sometimes. But that article is fascinating. '... while we expect PIMCO Income to remain a very attractive option, the level of its past success is likely to be almost impossible to replicate...' Okay. Does it shortchange PONDX flexibility and adaptability?
Regardless, appreciate tip that PONDX time is up and there are no other right places; lots of people better bail.
@hank, concur in take on msf work; you take your life in your hands querying or even responding.
Regards,
Ted
Another thought here ... Where does one draw the line in classifying a fund as a bond fund? I think that’s more than academic and results in a lot of confusion among investors. I guess, technically, an ultra-short like TRBUX is a bond fund. Yet, its risk/reward profile is markedly different from a long-term treasury fund, an intermediate-term muni, or a high yield fund. All are bond funds - but quite different.
FWIW - I own DODIX, but actually count it along side my cash positions. D&C doesn’t even offer a money market fund. They call DODIX an income fund. Of course it invests in bonds. Another I own and puzzle over is RPSIX. It may correctly be termed bond fund. But due to the very diverse mix of bond funds it holds, along with as much as 15% or more in a dividend paying stock fund, it displays a much different type of behavior than an intermediate or long-term corporate or treasury fund. In a bond rout, I’d feel safer holding RPSIX than a plain vanilla bond fund.
Too long winded here - In a nutshell: Should we distinguish between bond funds and an income fund like DODIX?
When I see people ask whether they should invest in a multisector fund or a short term fund or a core fund, one of the first questions that comes to mind is "what are you looking for", since these serve different functions and behave differently. They are simply different animals.
If one's objective is to goose yield, one can buy a leveraged fund. Most of those are closed end funds, so that's a good starting place. People seem to be happy with the boost they get from the leverage until they get burned, if they get burned. ("Industry studies show that over a long period of time, the benefits of leverage outweigh the drawbacks.") One can also buy OEFs that use leverage, like PONDX.
That gets us to your snapshot in time glance at its portfolio. Comparing the March 2015 annual report data with the 2017 annual report (from the M* site), one sees a big shift that comes in two parts:
- borrowing heavily:
$1.9B liabilities vs. $46B assets(2015) compared with $27B liabilities vs. $106B assets (2017),
- using that debt to buy government bonds ($0 Treasuries in 2015, 25.2% Treasuries in 2017).
That's almost a dollar for dollar pairing. Honestly, I'm surprised the numbers work out that way. Nothing in real life is supposed to be that neat. But it seems that that the fund is continuing to focus on securitized debt for its core investments. Leverage is being used on the side to boost returns.
You're comfortable with increased leverage in a rising interest rate environment. I'm not. Sometimes it can still work, depending on how the yield curve moves - how fast and how the slope/curvature changes. Sometimes you can get badly burned. Best of luck.