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Crazy that IOFIX still has a double digit 1 year return.
Could this possibly be a way to play normalizing bond markets....whenever that actually occurs? Will it’s portfolio dramatically “reprice” and “gain” NAV rapidly? Just asking hypothetically (I completely lucked out and sold from all accounts I have/help with at the beginning of March (when it was only losing a percent or two, every day, not 10-20%)).
The “recent dislocation is one of the most rapid and severe we’ve seen—and this is all with the backdrop that there are no solvency concerns around the mortgage agencies, Fannie Mae and Freddie Mac, in contrast to the experience during the financial crisis,” Daniel Hyman and Ryan Murphy of Pimco wrote in a Sunday note.
Tom Barrack, chairman and chief executive of Colony Capital (CLNY) ... called for regulators to suspend “mark to market” requirements for real-estate holdings to allow real-estate investors and operators to negotiate terms of new loans and payment schedules as the coronavirus slows (or halts) a lot of economic activity.
"called for regulators to suspend “mark to market” requirements"
That seems like a good approach, but the various securities would still need to be marked at some value, yes? I wonder how that could be accomplished in a fair manner. I guess that they could maybe pick a prior "as of" date?
@OJ. I don't know either, but when we get through this crisis, bond oef/etf pricing mechanisms and/or holding regulations will have to be improved. A dream I have.
From the article: "Corporate and muni bonds don’t trade every day — even in the best of times.... Yet fixed income mutual funds, CEFs and ETFs have NAV prices published every day. If most of these bonds aren’t trading, where do the prices come from....They are estimated. Back when I managed a junk bond fund, we used outside consultants known as pricing services. Some operate by communicating with trading desks for opinions regarding where they thought an issue would trade..."
That is exactly the problem. They use estimates until there are buys or in this case sales that establish a real price. So when the estimates are obviously higher or much higher than the prices they see quoted the last thing a manger wants to do is sell and set a price, but when a wave of redemptions come in they have no choice, the sell the prices drop more redemptions etc etc.
Over the last few years there are fewer and fewer market makers making the markets a lot less liquid. The few that are left probably have no incentive to offer realistic prices but instead low ball them. They also probably know when a huge fund company has to sell at any price
I suspect they need to survive redemptions first, then see what’s left. Until the Fed stepped-in yesterday, even highly traded ETFs like TLT and LQD had big discounts between price and NAV, signaling liquidity concerns with IG bonds. There are smart people out there that saw this coming. I didn’t. To me, it feels like the proverbial black swan. Heart-breaking!
Hi @Charles You noted: Until the Fed stepped-in yesterday, even highly traded ETFs like TLT and LQD had big discounts between price and NAV, signaling liquidity concerns with IG bonds. Your stating price and NAV, of course; is not the same as BID/ASK. Where/what are you viewing the discounts between price and NAV? Thank you. Catch
Hi @Mark I look at Fido and M* for numbers, but; I observe the bid/ask to guide me in what is happening at the time. I've obviously missed what Charles is pointing towards. I can fully understand a price and NAV difference in the past week with LQD; as 50% of the holdings are BBB rated, and in the current environment placed BBB on the edge of good junk. TLT is AAA Treasury stuff, although subject too, to folks wanting to sell at some point in time; but not right now. Thank you. Catch
@Graust, not sure what you were looking at. As of yesterday's close, IOFIX was down over -34% for 1Y, and even through Friday's close it was about -25%.
@BenWP, I get the joke, but maybe you could use another analogy given SA's horrendous record of racehorse deaths? I'd hate to think that our investments could go down for the count at any time.
@franktrdr, I read that article on SA, and others describing the mayhem in the FI markets. I believe the author may have been mistaken about CEF NAVs. AFAIK, they are still only published weekly. M* shows a daily as of date, but in the cases of the CEFs I hold, the manager's website only updates weekly and the value on M* only changes weekly. I'm not certain as to whether or not there are any other sources which are updated more frequently.
In all my days, and I'm talking pre-1987 crash by more than a decade, I've never seen anything like this environment, and, I can also say that I've never seen a fund with a perfect '100' scorecard across all linked time-periods on M*, as is the situation for this fund. 'Never say never'.
To try and figure out whether this fund is ever worth going back into, much less now when things are so crazy that, e.g. Vanguard's Muni MM has a 7-day yield of 3%!!!!, Charles is absolutely right, things need to settle down, and then I'd look for funds that maybe weren't so great on the way up, but didn't kill you on the way down.
One final comment on the TLT price breaks vs. NAV. USTs are the Gold Standard for collateral, repos, derivatives, etc., so when things start to unwind, and counter-parties can't make payments, they can lose the bonds and the new holders may be very eager to liquidate because they don't want the interest rate risk (in addition to whatever else is on their balance sheets). Hence, fire sales abound. There was also a story last week about a CME clearing firm (Ronin Capital) that went belly up (dealer-to-dealer) and whose assets had to be auctioned off.
Thanks @FD1000 I thought there may be some other data sort at another particular site that Charles views to obtain a different inference. I'm familiar with the M* data. @Charles, you noted:
How could there not be a robust market for TLT? But there wasn't ... until yesterday.
The market for these similar TLT, EDV and ZROZ Treasury issues has been robust; but when these and other Treasury issues started to falter on March 9, is the reason for my post that was originally titled, "Absolutely Dumbfounded"...........something was "broken". However, these 3 have performed well YTD: --- TLT = +20.6% YTD --- EDV = + 27.5% YTD --- ZROZ = +30.1% YTD
However, as I had noted previous; these 3 etf's can be hot potatoes and deliver in the opposite direction, too.
I expect these 3 will give up some positive, with an initial "stimulus" package passage; but who knows how long any of a "happy" time may exist for an equity bump, too. Many bond and equity bumps in the road ahead.
Just checked AUM ... $1.7B, down from $4.5B. The irony is that today's level is where they were when they told me they were "day to day" on inflows.
I loved these guys, their firm, and their strategy. The AUM growth was one of my few complaints. That, and the fact the they were just the subadvisor to AlphaCentric, which has an awful record and management.
But Garrison Point seemed to be left alone and there was no fall-off in performance with AUM. So, they seemed to handle it ... until this.
It's had a remarkable five-year run.
Talk about hiding volatility in NAV ... a whole new level.
I wonder if GP had been its own advisor if the story would have ended differently.
Comments
Could this possibly be a way to play normalizing bond markets....whenever that actually occurs? Will it’s portfolio dramatically “reprice” and “gain” NAV rapidly? Just asking hypothetically (I completely lucked out and sold from all accounts I have/help with at the beginning of March (when it was only losing a percent or two, every day, not 10-20%)).
The “recent dislocation is one of the most rapid and severe we’ve seen—and this is all with the backdrop that there are no solvency concerns around the mortgage agencies, Fannie Mae and Freddie Mac, in contrast to the experience during the financial crisis,” Daniel Hyman and Ryan Murphy of Pimco wrote in a Sunday note.
Tom Barrack, chairman and chief executive of Colony Capital (CLNY) ... called for regulators to suspend “mark to market” requirements for real-estate holdings to allow real-estate investors and operators to negotiate terms of new loans and payment schedules as the coronavirus slows (or halts) a lot of economic activity.
That seems like a good approach, but the various securities would still need to be marked at some value, yes? I wonder how that could be accomplished in a fair manner. I guess that they could maybe pick a prior "as of" date?
https://seekingalpha.com/article/4333772-why-your-supposedly-stable-fixed-income-etf-fell-off-cliff?utm_medium=email&utm_source=seeking_alpha&mail_subject=tlt-mint-why-your-supposedly-stable-fixed-income-etf-fell-off-a-cliff&utm_campaign=rta-stock-article&utm_content=link-2
From the article:
"Corporate and muni bonds don’t trade every day — even in the best of times....
Yet fixed income mutual funds, CEFs and ETFs have NAV prices published every day. If most of these bonds aren’t trading, where do the prices come from....They are estimated. Back when I managed a junk bond fund, we used outside consultants known as pricing services. Some operate by communicating with trading desks for opinions regarding where they thought an issue would trade..."
https://twitter.com/EricBalchunas/status/1242426219569852418?s=20
Over the last few years there are fewer and fewer market makers making the markets a lot less liquid. The few that are left probably have no incentive to offer realistic prices but instead low ball them. They also probably know when a huge fund company has to sell at any price
Invesco Mort. Cap. REIT, IVR , Down -43% today. Can not meet margin calls.
Overview indicates a -82% from 52 week high.
Disclosure: we don't have any horses in this area of racing.
You noted:
Until the Fed stepped-in yesterday, even highly traded ETFs like TLT and LQD had big discounts between price and NAV, signaling liquidity concerns with IG bonds.
Your stating price and NAV, of course; is not the same as BID/ASK.
Where/what are you viewing the discounts between price and NAV?
Thank you.
Catch
I look at Fido and M* for numbers, but; I observe the bid/ask to guide me in what is happening at the time. I've obviously missed what Charles is pointing towards.
I can fully understand a price and NAV difference in the past week with LQD; as 50% of the holdings are BBB rated, and in the current environment placed BBB on the edge of good junk. TLT is AAA Treasury stuff, although subject too, to folks wanting to sell at some point in time; but not right now.
Thank you.
Catch
Example as of 3/23/2020...for one week...Price=+1.28...NAV=-0.51%
https://twitter.com/MstarETFUS/status/1242452746466402305?s=20
@BenWP, I get the joke, but maybe you could use another analogy given SA's horrendous record of racehorse deaths? I'd hate to think that our investments could go down for the count at any time.
@franktrdr, I read that article on SA, and others describing the mayhem in the FI markets. I believe the author may have been mistaken about CEF NAVs. AFAIK, they are still only published weekly. M* shows a daily as of date, but in the cases of the CEFs I hold, the manager's website only updates weekly and the value on M* only changes weekly. I'm not certain as to whether or not there are any other sources which are updated more frequently.
In all my days, and I'm talking pre-1987 crash by more than a decade, I've never seen anything like this environment, and, I can also say that I've never seen a fund with a perfect '100' scorecard across all linked time-periods on M*, as is the situation for this fund. 'Never say never'.
To try and figure out whether this fund is ever worth going back into, much less now when things are so crazy that, e.g. Vanguard's Muni MM has a 7-day yield of 3%!!!!, Charles is absolutely right, things need to settle down, and then I'd look for funds that maybe weren't so great on the way up, but didn't kill you on the way down.
One final comment on the TLT price breaks vs. NAV. USTs are the Gold Standard for collateral, repos, derivatives, etc., so when things start to unwind, and counter-parties can't make payments, they can lose the bonds and the new holders may be very eager to liquidate because they don't want the interest rate risk (in addition to whatever else is on their balance sheets). Hence, fire sales abound. There was also a story last week about a CME clearing firm (Ronin Capital) that went belly up (dealer-to-dealer) and whose assets had to be auctioned off.
Be careful out there!
But, SEMMX (more conservative with SD around 1-1.2) was down another -2.95%
@Charles, you noted: The market for these similar TLT, EDV and ZROZ Treasury issues has been robust; but when these and other Treasury issues started to falter on March 9, is the reason for my post that was originally titled, "Absolutely Dumbfounded"...........something was "broken".
However, these 3 have performed well YTD:
--- TLT = +20.6% YTD
--- EDV = + 27.5% YTD
--- ZROZ = +30.1% YTD
However, as I had noted previous; these 3 etf's can be hot potatoes and deliver in the opposite direction, too.
I expect these 3 will give up some positive, with an initial "stimulus" package passage; but who knows how long any of a "happy" time may exist for an equity bump, too. Many bond and equity bumps in the road ahead.
Take care,
Catch
Just checked AUM ... $1.7B, down from $4.5B. The irony is that today's level is where they were when they told me they were "day to day" on inflows.
I loved these guys, their firm, and their strategy. The AUM growth was one of my few complaints. That, and the fact the they were just the subadvisor to AlphaCentric, which has an awful record and management.
But Garrison Point seemed to be left alone and there was no fall-off in performance with AUM. So, they seemed to handle it ... until this.
It's had a remarkable five-year run.
Talk about hiding volatility in NAV ... a whole new level.
I wonder if GP had been its own advisor if the story would have ended differently.
c