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River Canyon (RCTIX) Minimum Purchase Amounts at Fidelity
I referenced this symbol back in January 2018 and have been following it since. While impressed with its performance, there is a caveat. It is prone to out of the ordinary daily trading gains. For instance most of its outperformance YTD can be attributed to an outsized daily gain one day in January. It was the same way last year where just a couple trading days contributed to its yearly gain. I worry that could cut both ways and you could see an outsized daily decline. Also, how much longer can the good times continue in securitized credit more specifically non agency rmbs.
That's what you get with less liquid underlying instruments... Honestly, a daily liquid mutual fund probably isn't the best package to offer a strategy that is largely structured credit.
If the fund gets larger and then subsequently sees large redemptions, it will be difficult to unwind positions without taking severe down marks.
Fund 1 Fund 2 Securitized 80.22% 70.81% Agency MBS Pass-Through 18.39% 14.86% Agency MBS ARM 9.35% 0.01% Agency MBS CMO 10.46% 2.31% Non-Agency Residential MBS 4.33% 12.31% Commercial MBS 0.00% 5.02% Asset-Backed 37.69% 34.39% Covered Bond 0.00% 0.49%
Would you consider one of these funds significantly more or less risky than the other? If your focus is on non-agency RMBSs, would you consider Fund 2 higher risk?
To my less discerning eye, these look pretty similar, though in a broad sense it seems Fund 1 concentrates a bit more on Agency MBSs (of all stripes) than non-Agency MBSs (of all stripes), while Fund 2 does the reverse. They are both more than 1/3 invested in ABSs.
(Figures are from M*; Fund 1 is dated 3/31/19; Fund 2 is dated 12/31/18.)
After taking a bit more of a look my concern is similar to Junksters. I owned IOFIX for a little over a year in my Bond Pot but sold it a couple of days after its large mid-November one day downward repricing. That just did not set well with me for a Bond Pot holding. Several weeks ago EIXIX got added to replace it at the high volatility end of that Pot. That continues to make sense for me. (There is also some SEMPX in that Pot.)
@JoJo26 Yes. Somehow my portfolio wound up with Pots instead of Buckets. Perhaps that's because I like spending some time in the kitchen. (Also, I live in Oregon where "pot" shops can be found in most shopping centers!)
For allocation planning, I like to start with the old fashioned pie-chart. Really provides some nice perspective on the relative proportions of various assets. Than I convert that to a simple list of the various categories I want to invest in and the desired percentage allocated to each (normally expressed as an acceptable range). Sometimes there are sub-categories listed inside the larger ones.
Actually, my approach looks a lot like how T. Rowe lists the various component holdings inside their myriad of Spectrum funds (displayed near the back of every fund report). I’m aware, however, many investors prefer to use fancier terminology like: buckets, pots & sleeves - Whatever floats your boat!
@hank According to the Oregon Liquor Control Commission there may be at least one place where there is too much pot.....
Oregon is producing twice as much cannabis as people are using, according to a new study from the Oregon Liquor Control Commission. And Oregon has been overproducing marijuana for a while — leaving more than six years’ worth of supply sitting on shelves and at farms.
I referenced this symbol back in January 2018 and have been following it since. While impressed with its performance, there is a caveat. It is prone to out of the ordinary daily trading gains. For instance most of its outperformance YTD can be attributed to an outsized daily gain one day in January. It was the same way last year where just a couple trading days contributed to its yearly gain. I worry that could cut both ways and you could see an outsized daily decline. Also, how much longer can the good times continue in securitized credit more specifically non agency rmbs.
The fund has a limited number of holdings because of its current size. So a move in a single security can move the fund’s performance on a daily basis. I would say that more than a few days influenced RCTIX performance last year, and most daily moves in most funds are noise.
In many cases, only a few days account for the performance of many investments.
For example if you missed the 20 best days in the stock market over the past 20 years(1/99-12/18) your annualized return was -.33% vs 5.62%.
Yes, in January they monetized a bond at a significantly higher price than the pricing services were pricing it at. Their investment thesis on the bond was realized faster than they had anticipated, and when they were offered a very attractive price, decided to monetize it.
Also, there's more to securitized credit than just non-agency RMBS. They don’t know how long the good times can last, but relative to other credit sectors such as investment grade or high yield, they think securitized credit and non-agency RMBS can still offer strong relative returns.
Non-agency RMBS won’t produce the returns they have in the past, but today they still offer good yields with capital appreciation opportunities. Housing continues to improve, borrowers continue to pay their mortgages, and loan to values continue to improve. So they think these underlying trends will continue to support the non-Agency RMBS market -- which I noted in my article.
JoJo26
That's what you get with less liquid underlying instruments... Honestly, a daily liquid mutual fund probably isn't the best package to offer a strategy that is largely structured credit.
If the fund gets larger and then subsequently sees large redemptions, it will be difficult to unwind positions without taking severe down marks.
With regards to liquidity, the fund has a 60% investment grade minimum specifically designed to meet the daily liquidity needs of investors. Between cash and Agency mortgage TBA’s over 60% of the fund could be in cash tomorrow.
Additionally, regarding the non-agency RMBS, there is strong demand for this paper, and it can be liquidated quickly as well. The sector has recovered substantially and trades very well.
Investors would be wise to consider fund size with regards to liquidity in non-agency RMBS. Many of the mega funds who would need to liquidate billions of dollars in Non-Agency RMBS would have a much more difficult time than a smaller fund such as RCTIX.
Last, RCTIX invests across the capital structure of the individual securities they own. In many cases, they've invested in the senior tranches of the structure. Also, the fund is not investing in odd lot securities that can be difficult to trade.
I hope that this additional information is helpful. I'm done reporting on the fund and moving on.
I don't see any reason to own this fund. YTD over 8% is impressive but I would not buy a bond fund that made over 5% in one day (that was at the end of 01/2019). This is a red flag. If I want to Multi sector funds see the following Suppose I wanted to hold several bond OEFs without much trading. I searched at Schwab the following
Total Return (3 Month): Greater than or equal to 2; Average Annual Return (3 Year): Greater than or equal to 5; Average Annual Return (1 Year): Greater than or equal to 4.5; This criteria is to ensure a fund with good performance for 3-12-36 months to cover ST+LT performance.
Fees/Loads: OneSource Funds (no-load, no transaction fee); Open to New Investors: Yes
The following are pretty good choices I can live with (select 4-5 funds from the following VCFAX+PIMIX+JMUTX+PUCZX+JGIAX+IOFIX).
Comments
If the fund gets larger and then subsequently sees large redemptions, it will be difficult to unwind positions without taking severe down marks.
To my less discerning eye, these look pretty similar, though in a broad sense it seems Fund 1 concentrates a bit more on Agency MBSs (of all stripes) than non-Agency MBSs (of all stripes), while Fund 2 does the reverse. They are both more than 1/3 invested in ABSs.
(Figures are from M*; Fund 1 is dated 3/31/19; Fund 2 is dated 12/31/18.)
https://www.bridgemi.com/detroit-journalism-cooperative/whitmer-detroit-chamber-there-not-enough-pot-fill-potholes
For allocation planning, I like to start with the old fashioned pie-chart. Really provides some nice perspective on the relative proportions of various assets. Than I convert that to a simple list of the various categories I want to invest in and the desired percentage allocated to each (normally expressed as an acceptable range). Sometimes there are sub-categories listed inside the larger ones.
Actually, my approach looks a lot like how T. Rowe lists the various component holdings inside their myriad of Spectrum funds (displayed near the back of every fund report). I’m aware, however, many investors prefer to use fancier terminology like: buckets, pots & sleeves - Whatever floats your boat!
In many cases, only a few days account for the performance of many investments.
For example if you missed the 20 best days in the stock market over the past 20 years(1/99-12/18) your annualized return was -.33% vs 5.62%.
Yes, in January they monetized a bond at a significantly higher price than the pricing services were pricing it at. Their investment thesis on the bond was realized faster than they had anticipated, and when they were offered a very attractive price, decided to monetize it.
Also, there's more to securitized credit than just non-agency RMBS. They don’t know how long the good times can last, but relative to other credit sectors such as investment grade or high yield, they think securitized credit and non-agency RMBS can still offer strong relative returns.
Non-agency RMBS won’t produce the returns they have in the past, but today they still offer good yields with capital appreciation opportunities. Housing continues to improve, borrowers continue to pay their mortgages, and loan to values continue to improve. So they think these underlying trends will continue to support the non-Agency RMBS market -- which I noted in my article.
JoJo26 With regards to liquidity, the fund has a 60% investment grade minimum specifically designed to meet the daily liquidity needs of investors. Between cash and Agency mortgage TBA’s over 60% of the fund could be in cash tomorrow.
Additionally, regarding the non-agency RMBS, there is strong demand for this paper, and it can be liquidated quickly as well. The sector has recovered substantially and trades very well.
Investors would be wise to consider fund size with regards to liquidity in non-agency RMBS. Many of the mega funds who would need to liquidate billions of dollars in Non-Agency RMBS would have a much more difficult time than a smaller fund such as RCTIX.
Last, RCTIX invests across the capital structure of the individual securities they own. In many cases, they've invested in the senior tranches of the structure. Also, the fund is not investing in odd lot securities that can be difficult to trade.
I hope that this additional information is helpful. I'm done reporting on the fund and moving on.
Best.
Suppose I wanted to hold several bond OEFs without much trading. I searched at Schwab the following
Taxable Bond;
Morningstar Category: Intermediate Core Bond, Multisector Bond, Nontraditional Bond, Ultrashort Bond;
Morningstar Overall: 4 Stars, 5 Stars;
Standard Deviation: Less than or equal to 3.6;
Total Return (3 Month): Greater than or equal to 2; Average Annual Return (3 Year): Greater than or equal to 5; Average Annual Return (1 Year): Greater than or equal to 4.5; This criteria is to ensure a fund with good performance for 3-12-36 months to cover ST+LT performance.
Fees/Loads: OneSource Funds (no-load, no transaction fee); Open to New Investors: Yes
The following are pretty good choices I can live with (select 4-5 funds from the following VCFAX+PIMIX+JMUTX+PUCZX+JGIAX+IOFIX).