Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
"While Hasenstab won’t predict when U.S. rates will increase, he has been stocking up on short-term bonds in emerging markets like South Korea with higher yields of 2.5% to 3%. “They have an interest rate advantage, so if we look out five years, the value of the Korean won relative to the value of the dollar will probably be higher because we’re just flooding the world with dollars,” he said to the FT."
I believe that OAKBX uses short term treasuries as cash replacement. In this sense, it does not differ much from some other prominent funds which presently have lots of money in cash, waiting for bargains. For example, FPACX has 35% in cash, ARIVX has 51% in cash, and OAKBX has 24% in a sum of cash and (mostly) short term bonds.
I attempted than to dispel the notion that OAKBX has a significant position in long term treasuries by looking at the than most recent fund report.
I wrote: "As of June 30, 2012, Oakmark Equity and Income Fund Holdings: Common Stock 70.1%. Fixed Income 22.4%. Short Term Investments 6.4%. Approximate cash on hand 1.1%
Re Above: Fixed Income (22.4%) With the exception of less than 1% invested in Norwegian government notes, this consists of U.S. government debt obligations. Of these TIPS comprise just under 15% of the total. The TIPS also have the longest dated maturities, some extending out to 2020. The remainder are mostly Treasury issues with substantially shorter maturities - most 3 years or less.
Re Above: Short Term investments (6.4%) These appear to be about evenly split between a repurchase agreement involving Federal Home Loan Bank short duration securities and Canadian government short term bonds. Less than 1% consists of commercial paper.
Re Above: We can infer the fund does not hold any junk bonds.
In his commentary, Clyde McGreggor, Portfolio Manager notes the fund's "... low fixed income duration of 1.7 years." If this sounds at variance with the stated maturities above, it's because maturity and duration are two different animals." ----
NOW - Longer term treasuries certainly represent a better value today than they did last summer. The yield to maturity on the 10-year is around 2%, compared with 1.5% at that time. That suggests about a 33% increase in future returns over what they would have produced last summer. I have no evidence OAKBX has lengthened bond duration recently. (Perhaps you do?) However, with that kind of dramatic rise in yield over just a few months, I'd be disappointed if they aren't beginning to nibble at longer duration bonds.
Dollar-denominated EM sovereigns are getting pretty well whacked; PCY and EMB are both down ~ 3% YTD, more than U.S. core bond funds. They did have quite a run in '12 ... PCY was up 20% or so.
Comments
I attempted than to dispel the notion that OAKBX has a significant position in long term treasuries by looking at the than most recent fund report.
I wrote: "As of June 30, 2012, Oakmark Equity and Income Fund Holdings: Common Stock 70.1%. Fixed Income 22.4%. Short Term Investments 6.4%. Approximate cash on hand 1.1%
Re Above: Fixed Income (22.4%) With the exception of less than 1% invested in Norwegian government notes, this consists of U.S. government debt obligations. Of these TIPS comprise just under 15% of the total. The TIPS also have the longest dated maturities, some extending out to 2020. The remainder are mostly Treasury issues with substantially shorter maturities - most 3 years or less.
Re Above: Short Term investments (6.4%) These appear to be about evenly split between a repurchase agreement involving Federal Home Loan Bank short duration securities and Canadian government short term bonds. Less than 1% consists of commercial paper.
Re Above: We can infer the fund does not hold any junk bonds.
In his commentary, Clyde McGreggor, Portfolio Manager notes the fund's "... low fixed income duration of 1.7 years." If this sounds at variance with the stated maturities above, it's because maturity and duration are two different animals."
----
NOW - Longer term treasuries certainly represent a better value today than they did last summer. The yield to maturity on the 10-year is around 2%, compared with 1.5% at that time. That suggests about a 33% increase in future returns over what they would have produced last summer. I have no evidence OAKBX has lengthened bond duration recently. (Perhaps you do?) However, with that kind of dramatic rise in yield over just a few months, I'd be disappointed if they aren't beginning to nibble at longer duration bonds.