Howdy,
A thank you to all who post the links, start and participate in the many fine commentaries woven into the message threads.
For those who don't know; I ramble away about this and that, at least once each week.
NOTE: For those who visit MFO, this portfolio is designed for near retirement, capital preservation and to stay ahead of inflation creep. This is not a buy and hold portfolio, and is subject to change on any given day; based upon perceptions of market directions. All assets in this portfolio are in tax-sheltered accounts; and any fund distributions are reinvested in the funds. Gains or losses are computed from actual account values.
While looking around.....That's more like it, eh? Good old November has been an interesting investment month. U.S. equites, broadly noting; started the month a bit negative and had two weeks of a -1.5% and -2.2% and bounced up +3.8% last week. Our broad based bond mix has been stuck between +11.72 and +11.51% YTD for the month. I will suppose that an equity rally through year end could add 10% to equities and shave no more than 1% from our bond mix. The "fiscal cliff" thingy will likely find a blended fix; but I don't have a clue as to the blend; nor the ramifications upon investment sectors. Some U.S. companies have issued special distributions to allow investors an opportunity to perhaps obtain a lower tax rate for 2012 monies, versus potential rate changes for 2013. I am sure many companies still remain in stall mode relative to capital spending plans, too. All and all, quite a mess of unknowns remain. "That's more like it", should place the very best of traders and machine trades into the money round; as both may thrive from volatility. We continue to watch the housing/construction sector; which has already had a good yearly run. No more time remains on my personal clock, at this time; finding a short report.
The data/numbers below have been updated.
As to sector rotations below (Fidelity funds); for the past week: (Note: any given fund in any of these sectors will have varing degrees of performance based upon where the manager(s) choose to be invested and will not directly reflect upon your particular fund holdings from other vendors.) Sidenote: The average weekly return of 200 combined Fidelity retail funds across all sectors (week avg = + 2.4%, YTD +11.68%).
--- U.S. equity + 3.0% through + 4.9%, week avg. = + 3 .8% YTD = + 14.5%
--- Int'l equity + .8% through + 5.9%, week avg. = + 3.5% YTD = + 13.6%
--- Select eq. sectors - .05% through + 1.3%, week avg. = + 3.8% YTD = + 14.1%
--- U.S./Int'l bonds - 1.63% through + .68%, week avg. = - .32% YTD = + 3.76%
--- HY bonds + .10% through + .86%, week avg. = + .44% YTD = + 11.6%
A Decent Overview, M* 1 Month through 5 Year, Multiple Indexes
You may consider our portfolio to be quite boring, but you may be assured that it moves and bends each and every day; from forces beyond our control.
I have added a few blips related to our portfolio and market observations at the below SELLs/BUYs and Portfolio Thoughts.
SELLs/BUYs THIS PAST WEEK: = NONE.
Portfolio Thoughts:
Our holdings had a + .06 % move this past week. We'll continue to watch; but do not have plans at this time, to enter into equity areas.
b> Still plodding along, and we will retain the below write from previous weeks; as what we are watching, still applies. --- commodity pricing, especially the energy and base materials areas; copper and related.
--- the $US broad basket value, and in particular against the Euro and Aussie dollar (EU zone and China/Asia uncertainties).
--- price directions of U.S. treasury's, German bunds, U.K. gilts, Japanese bonds; and continued monitoring of Spanish/Italian bond pricing/yield.
--- what we are watching to help understand the money flows: SHY, IEF, TLT, TIPZ, STPZ, LTPZ, LQD, EMB, HYG, IWM, IYT & VWO; all of which offer insights reflected from the big traders as to the quality/risk, or lack of quality/risk; in various equity/bond sectors.
The Funds Boat is at anchor, riding in the small waves, watching the weather and behind the breakwater barrier. To the high praise of MFO and the members, it is very difficult to find a topic to note here that has not been placed into the discussion boards. Excellence, as usual.
I have retained the following links for those who may choose to do their own holdings comparison against the fund types noted.
The first two links to Bloomberg are for their list of balanced/flexible funds; although I don't always agree with the placement of fund styles in their categories.
Bloomberg BalancedBloomberg FlexibleThese next two links are for conservative and moderate fund leaders YTD, per MSN.
Conservative AllocationModerate AllocationA reflection upon the links above. We attempt to establish a "benchmark" for our portfolio to help us "see" how our funds are performing. Aside from viewing many funds within the balanced/flexible funds rankings (the above links), a quick and dirty group of 5 funds (below) we watch for psuedo benchmarking are the following:
***Note: these week/YTD's per M*
VWINX .... + .91% week, YTD = + 9.42%
PRPFX .... + 1.86% week, YTD = + 6.96%
SIRRX ..... + .21% week, YTD = + 6.73%
TRRFX .... + 1.57% week, YTD = + 9.66%
VTENX ... + 1.33% week, YTD = + 8.74%Such are the numerous battles with investments attempting to capture a decent return and minimize the risk.
We live and invest in interesting times, eh? Hey, I probably forgot something; and hopefully the words make some sense. Comments and questions always welcomed.
Good fortune to you, yours and the investments.
Take care,
Catch
---Below is what M* x-ray has attempted to sort for our portfolio, as of Nov. 1, 2012 ---
From what I find, M* has a difficult time sorting out the holdings with bond funds.
U.S./Foreign Stocks 1.9%
Bonds 93.9% ***
Other 4.2%
Not Classified 0.00%
Avg yield = 3.99%
Avg expense = .57%
***about 18% of the bond total are high yield category (equity related cousins)---This % listing is kinda generic, by fund "name"; which doesn't always imply the holdings, eh?
-Investment grade bond funds 28.2%
-Diversified bond funds 22.4%
-HY/HI bond funds 14.5%
-Total bond funds 32.4%
-Foreign EM/debt bond funds .6%
-U.S./Int'l equity/speciality funds 1.9%
This is our current list: (NOTE: I have added a speciality grouping below for a few of fund types)
---High Yield/High Income Bond funds
FAGIX Fid Capital & Income
SPHIX Fid High Income
FHIIX.LW Fed High Income
DIHYX TransAmerica HY
---Total Bond funds
FTBFX Fid Total
PTTRX Pimco Total
---Investment Grade Bonds
ACITX Amer. Cent. TIPS Bond
DGCIX Delaware Corp. Bd
FBNDX Fid Invest Grade
FINPX Fidelity TIPS Bond
OPBYX Oppenheimer Core Bond
---Global/Diversified Bonds
FSICX Fid Strategic Income
FNMIX Fid New Markets
DPFFX Delaware Diversified
LSBDX Loomis Sayles
PONDX Pimco Income fund (steroid version)
PLDDX Pimco Low Duration (domestic/foreign)
---Speciality Funds (sectors or mixed allocation)
FRIFX Fidelity Real Estate Income (bond/equity mix)
---Equity-Domestic/Foreign
NONE outright, with the exception of equities held inside some of the above funds.
Comments
Think this is first time I really looked at the details, sad to say.
I know the composition is for "near retirement, capital preservation and to stay ahead of inflation creep," but surprised to see it virtually devoid of equity.
Maybe it really is a reluctant bull, if not "A Bull Market In Fear."
I used to think that owning an equity share was owning a piece of a company. Has that changed? Gives me pause to think nobody wants to own companies anymore, just their debt. Has owning debt become a proxy for owning the company?
In any case, very much appreciate you sharing results for your boat each week. I will be following more closely going forward, and hoping always it is going full steam.
You noted: >>>>>The M* breakdown of the portfolio "thinks" the mix is about 1.9% equity. There are times, it appears, when M* can't quite determine a full accurate reading. We are okay with this and are pleased that we are able to have a view of the mix from their angle. We do have some equity slant from FAGIX, which at times may run as high as 20% equity holdings and currently reads about 8%. FRIFX is a conservative real estate fund and generally holds about a 40% equity/60% bond mix. LSBDX may hold up to about 20% equities. The HY bond funds are generally cousins to equity as related to market moves. For 2012, an ongoing review has shown our HY funds are currently close to returns with the S&P 500 indexes. This, of course, has varied throughout the year, too. As the markets have tossed and turned for 2012, one week will find support from the above funds noted; while another week finds support from the bond funds more tilted towards the investment grade sectors. A slow and sideways portfolio mix attempting to generate some continued capital appreciation from bond pricing, while throwing off yield; generally paid and reinvested monthly. >>>>> We were not a house of bonds prior to June, 2008; with only about 10% in bonds at that time. We have held up to 30% in equity at various times beginning in 2009 and through 2012. As to the "reluctant bull"; our portfolio feels like an investment orphan at times, as so much news is oriented towards owning equity to move forward with one's portfolio growth. We do not disagree with this notion; and must be aware of which equity sectors may benefit going forward, whether broad equity markets remain "sideways" or not. Not unlike bond sectors, there are always equity sectors that may remain more favorable than others for any number of reasons. This is what all of we investors are attempting to discover, eh? I can not imagine that our portfolio will remain naked in the equity sector going forward, regardless of retirement. We will have to continue to obtain capital appreciation from one area or another, or both. However, we feel at this time; "that this time is different" and although historical investment charts are of benefit to study, this is not my parent's, nor my generation's (age 65) market place. Things have changed and sorting a forward investment path has become more difficult; in my/our opinion. >>>>>I don't think this has changed. Equity is still owning a part of a company; and a company's debt (bond issues) is money one is lending to a company, for hopefully; a well thought plan. Utimately, one could hold both areas for a given company with buying some of their equity, as well as some of their bonds, too. I suppose this becomes a "balanced" portfolio. I will not disagree, as has been noted here in discussion, and with linked articles; that too many folks likely do not understand the full implication of market forces that can throw their bond holdings into a negative direction. Our house is aware of this; but it will be the timing and/or vision of when a more permanent trend has begun that could cause losses in some bond holdings. What the retiring boomer generation (reportedly 10,000/day) is going to do with their monies will likely have a fairly large impact on some investment areas for the next 20 years.
As to equity and bonds, and an example; we try to view these investment areas in this fashion. We and 1,000 friends in our area have pooled our money; and are well aware of the quality or lack of, the surrounding 25 mile radius of homes for sale. We feel we know the neighborhoods and trends affecting these areas. We decide that some of the homes are worth an outright purchase (equity, growth and/or value) for future monetary growth; while other homes do not meet this criteria; we do know folks who are willing and able to do what is needed to get homes in more marginal areas into shape for sale or rent. These folks have the qualifications and desire, but do not have ready access to, or the needed money. We lend (bonds, some will be investment grade and some will be junk status) these folks some of our money for a price.....interest rate/yield. In both cases, we hope all of the this works out to our monetary benefit, with a psuedo balanced investment portfolio.
Lastly, and something we need to continue to watch; is the ongoing bond flood. As Robin might say to Batman, "Holy crap, Batman; the ECB is issuing bonds to buy bonds !!!". Well, this is taking place in too many places (central banks/govt's) around the globe; including this country. I don't like this at all. There is a limit, eh? The whole thing is like a realtime and ongoing story from a "Twilight Zone" mini-series.
It would be much easier to pursue this with a real conversation at a table at the "mutual fund cafe". Hopefully, I was able to place some of the thinking properly, into the words here.
Take care,
Catch
: "Look at the history, for example, of Germany, for the last 100 years. They had World War I. They had the hyper-inflation in World War II. The bond-holders got wiped out three times. If you owned Siemens, and you still own Siemens today, it was not a fantastic investment, but at least you still have something. You were not wiped out. I think that in equities you will be better off because you have an ownership in a company, than by being the lenders to companies, and the lenders, especially, to governments."
I think that at catch has gotten very nice returns with the bond-heavy portfolio that he has had in recent memory. There will be a time when fixed income turns, and how much will flow into equity in terms of retail is questionable to some degree, but I think (and I could be wrong) that equity, overall, will do well (there's an enormous amount of variables, but a better choice to keep ahead of inflation than fixed income) over a 5-10 year time horizon. I continue to think there will be more volatility ahead - everything from Europe (which I think is worse than indicated) to if the government goes after hedge fund SAC successfully.
I think there are ways to approach equity allocation that are less volatile that could be used, such as SPLV (which provides a monthly dividend, if I remember correctly) and others.
Personally, I continue to invest in both stocks and funds, with a long-term time horizon, as I've gotten tired of trying to move with short-to-mid term market movements.
"reluctant bull"
With the easiest monetary policy probably in history, it's not surprising that money has flowed into assets. The question becomes how is the underlying really doing when there's discussion of ZIRP until the next election and iQE.
I don't think anyone should be 100% bonds, but I don't think anyone should be 100% equity (or real estate, or commodities, or whatever), either. There is a balance that's right for each individual.
I think catch is well aware that fixed income performance will not go on like this (although timing the turn is not possible), but I think what some on the board are curious about is what does catch view as the general plan in terms of indicators to look at that to start moving out of fixed income, etc.
You noted: >>>>> A proper question, and one that we all ask ourselves; whether equity, bond or any other sector holdings. I suppose, among other word choices, too; is that I look for "flatlining" of funds we hold, as well as "flatlining" in areas that affect various types of bonds. A prime example at this time is our holding of FBNDX. The 30 day S.E.C. yield is now at 1.6%. This is not much of a yield to "write home about" and won't buy the groceries going forward, eh? 'Course the yield is so low because of the buyers who continue to move into bond sectors. But, we all ask the question of our holdings; "What are ya do'in for me today?" I watch our bond funds to look for a trend, not unlike with an equity holding or other. FBNDX has a 1 month return of +.28% , a 3 month return of +1.4% and a YTD of 6.2%. Our overall portfolio is about +11.5% for the year, or about 1% a month on average. Obviously, FBNDX is not pulling its weigh at this time and has reduced the average against higher returns from our other holdings. This does not imply that other bond funds similar to FBNDX have not done better, and perhaps we just don't have the best of the breed with this holding. The fund is on the watch list for a rotation; but we will likely wait to find what happens in the next few months from D.C.land.
Fixed income, as a name; well, it is what has been used for many years, but, as we know, is a very broad area of bonds and there is little fixed with fixed income. Nearly fixed income for me would be a CD, money market, stable value holdings, annuity or similar product rate.
As has been noted in the weekly report, --- what we are watching to help understand the money flows: SHY, IEF, TLT, TIPZ, STPZ, LTPZ, LQD, EMB, HYG; we also note U.S. Treasury issues for price/yield. The slight problem with etf's and pricing moves is that this area is also the playground of the large money houses, including hedge funds; so, we can't always use these as a guage in a short time frame (one month or so). 'Course, many of these moving in the same direction and perhaps in concert with Treasury issues could have real meaning.
So, we watch these etf's and government pricing/yields to match against moves in the active managed bond funds. This area (managed funds) will likely be the most critical area for anyone holding bond funds and sells going forward.
"IF and when" one finds gov't. issue(s) yields moving up in a sustained fashion, which of course, means pricing is moving down and loss of value/capital appreciation; and also shows the same pattern within numerous bond sectors etf's and then moves into the same pattern with "some" managed bond funds; the sell signal for at least a portion of some funds would likely be triggered. At this point, one would need to know and ask why are yields trending and staying higher? Have the big trading houses and/or other very large players decided to take revenge on the U.S. Treasury by ganging up to "sell short" and make some quick cash?
Have other factors, both in the U.S. and globally changed enough to support higher yields; which should have already shown in the equity sectors in a rally mode?
The hugh amount of U.S. gov't. Treasury issues is a blessing and a curse of the times today. The dollar amounts held by other sovereign funds and/or governments is massive, which is a problem, too; but also tempers who, when and why as to a large and fast selling of these issues. China is likely not happy about many events and words thrown their way by the U.S.; but they are also reliant (at this time) upon the well being of our consumer economy. If China's Treasury holdings were to encounter a 10% loss within a 6 month period, I will suspect they will merely eat the loss; and move along with other business, but I am not convinced they would also start to unload their holdings. I can not currently find a recent report regarding more net purchases of U.S. Treasury issues in the past month from a mix of numerous other countries. The U.S. is still the best turd pile in the global pasture.
Noteable changes in bond returns will surely come some day.
1. watch Treasury pricing/yields; as well as bunds, gilts, Japanese bonds
2. watch reactions from 1 in bond eft's in all bond sectors
3. watch reactions from from 1 & 2 in active managed bond funds; and in particular, the more narrowly focused managed bond funds. (Most TIPs funds closely follow reactions in LTPZ, STPZ, TIPZ and TIP)
4. if one is watching 1, 2 & 3; perhaps 5 is already taking place
5. watch your favorite broad based equity eft's or fund's, as they may have already started a sustained upward move.
6. the tougher part is that there is going to be the right sectors of either bonds or equity that will do well, regardless of broad market trends. This is the really hard work portion; and in particular, that the market place is adjusted and perverted from central bank policies.
Not all bond funds, of course; are going to react in the same fashion in a rising rate environment and the picking and choosing is important with this.
Even with some ups and downs this year (not related to rising interest rates), FNMIX and other EM bond funds should do well for the entire year. FNMIX is currently at +17.6% YTD.
If my best friend stopped at the house today and stated that they didn't want any part of the equity markets, only bonds; I would instruct them to find the 10 best multi-sector bond funds over the past 5 years, look at 2008 returns and again at 2011 returns in particular, as well as the short time periods of the spring periods of 2010 and 2011. When their list of 10 was finished, they then place 10% into each fund. Perhaps to even convince them to do 10% each into 7 of the bond funds and 10% each to the best 3 large cap/blend equity funds. Sounds so simple, eh?
Lastly, is the risk and reward all of us have to measure against our own particular circumstances. When our house wins the "PowerBall" lotto, you will see a different actively managed portfolio from this desk.:)
Does what our house is trying to watch regarding bond funds make sense from the written words? Tis most difficult to get the full feeling and meaning with so very few words.
Take care,
Catch
"Noteable changes in bond returns will surely come some day.
1. watch Treasury pricing/yields; as well as bunds, gilts, Japanese bonds
2. watch reactions from 1 in bond eft's in all bond sectors
3. watch reactions from from 1 & 2 in active managed bond funds; and in particular, the more narrowly focused managed bond funds. (Most TIPs funds closely follow reactions in LTPZ, STPZ, TIPZ and TIP)
4. if one is watching 1, 2 & 3; perhaps 5 is already taking place
5. watch your favorite broad based equity eft's or fund's, as they may have already started a sustained upward move.
6. the tougher part is that there is going to be the right sectors of either bonds or equity that will do well, regardless of broad market trends. This is the really hard work portion; and in particular, that the market place is adjusted and perverted from central bank policies."
Well, I'm sure I don't understand it well enough to know if it makes sense or not, but please sound the alarm when you see the indicators telling us to lessen bond holdings.
Have a good week.
Derf