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Pimco Income bond fund Another one that was good until it wasn't?
What are folks doing...buy, sell, or hold? I'm getting impatient waiting for this one to get back on track. BND and other similar index funds have greatly outperformed Pimco Income recently.
We do have hedging portfolio /and stock portfolio...mostly good qualities funds that we tend hold longer terms, no changes in those...the smaller liquid assets we do little tradings We are still 90/10 but mostly in stocks for longer term retirement.
Have raised same question with Mother*s retired portfolio... thinking may add another good bond funds /index or add more fidelity2020 vs lsbrx but will wait for answers from board. Couple pimco funds have not hold up to pars recently.
Most manage funds may not outperform index funds longer term
Are you concerned about your fund selection or your category selection? PIMIX is matching its category average YTD (-0.81% vs -0.78% category) That's not to say you couldn't easily find a multisector fund that's done better short term.
Why did you buy a multisector fund originally, and has that reason changed? Is this your only type of bond fund, or are you using it to get a little extra kick, recognizing that it will track equities more closely than will a vanilla bond fund?
PIMCO funds are incredibly opaque. But if I had to guess, I'd say that its middle-of-the pack performance (as opposed to better) is due to it keeping duration very short. Given that, its performance relative to other multisector funds remains impressive (and possibly due to leverage).
Duration is a factor one should consider. If you like PIMCO funds, still want a multisector fund, and don't mind the interest rate risk (i.e. you're betting that rates won't go up at least for a fair amount of time), you could look at PDIIX. It has a duration of around six years.
If you don't want a multisector fund and again are willing to live with the interest rate risk of a fund with a six year duration, then VBTLX / BND is fine. If you're willing to accept a bit of credit risk (VBTLX is 4/9 government bonds), you could look into core plus funds (or corporate funds) rather than core bond funds.
The bottom line is that what is best depends on what you're looking for.
I considered investing in PIMIX a while ago. In the multi-sector bond category, PIMIX had generated top-decile trailing returns with below average volatility. The fund's non-agency mortgage sector investments accounted for much of the strong performance after the financial crisis. However, the non-agency mortgage sector is much smaller today. Yet, Pimco refuses to close PIMIX which currently has ~ $120 Bil AUM. Matter of fact, I don't believe that PIMCO has ever closed a fund because it grew too large. This company policy is not in an investor's best interest.
@msf Thanks, your questions have helped greatly in my thought process
I am concerned about my category selection rather than my fund selection.
I purchased an active bond fund because I think active management can add value over passive index bond funds. I purchased a multsector fund bond fund to give the bond managers latitude in their holdings decisions. This reason has not changed although passive bond fund management (BND) is looking pretty good now, but I will not performance chase.
Pimco Income is the only stand alone bond fund that I own (all of my other bond holdings are part of target date funds).
I will leave interest rate (duration) decisions to the experts. In my opinion he experts at Pimco Income are probably as good as any.
Decision made: I will stay with Pimco Income Thanks!
Although I have not kicked PONAX (Pimco Income) to the curb I recently started a position in MIAQX (American Funds Multi Sector Income) which thus far has made money for me while at the same time grown it's nav. Actually, I now own more of MIAQX than I do of PONAX. MIAQX is the fourth largest position in my income sleeve of twelve funds since I have been trimming my equity allocation and I have been doing nav transfers into it from equity funds that I trimmed. In fact, MIAQX (according to M*) is the best performing fund year to date within my income sleeve. Currently, it sports a 4.4% yield.
Additional comment. Interestingly, I also own Thornburg Strategic Income A shares (TSIAX) that @FD1000 commented own below. According to M* it is the number 2 year to date performer within my income sleeve with MIAQX being number 1. My muni fund FLAAX is listed as number 3.
From my perspective, it is nice to have FD1000 posting on the board with his insights to fixed income. His postings have helped me within the fixed income area of my portfolio.
PIMIX was a great fund until the beginning of 2018. PIMIX is still a decent fund. You can't look at PIMIX YTD and compare it to BND (high rated bonds) when we had a black swan. PDIIX is another Pimco fund, much smaller and managed by the same team. I would go with PTIAX. LT good record + good downside protection. 2 more option are TSIIX and ADVNX. These 3 funds have the following: 1) 3 year average annually over 4.3% 2) SD(volatility) lower than 5 3) Morningstar return above average or high 4) Morningstar risk low/below average.
I bought PIMIX 3 or 4 years ago @12.26 more or less. I must have bought it at it's highest NAV because it never got back up to my original purchase price. However, I bought it for income, and it has been reliably churning out a pretty good income since. Morningstar quotes a TTM yield of over 6%. I just keep reinvesting in more shares since I don't need the income yet. I'll keep PIMIX as long as the income keeps rolling in.
I considered investing in PIMIX a while ago. In the multi-sector bond category, PIMIX had generated top-decile trailing returns with below average volatility. The fund's non-agency mortgage sector investments accounted for much of the strong performance after the financial crisis. However, the non-agency mortgage sector is much smaller today. Yet, Pimco refuses to close PIMIX which currently has ~ $120 Bil AUM. Matter of fact, I don't believe that PIMCO has ever closed a fund because it grew too large. This compaoblony policy is not in an investor's best interest.
With the better financial reporting, "trust but verify" is good practice. (With much financial reporting, the "trust" part isn't justified.)
Jacobson writes that "Pre-financial-crisis supply in the [nonagency residential mortgage] sector has been shrinking." Those securities are often referred to as legacy RMBS (i.e. securities issued pre-financial crisis). And the statement's correct. However, the post GFC RMBS 2.0 sector (with stricter borrower guidelines) is growing. Though it is still minuscule; I don't want to suggest otherwise. https://www.marketwatch.com/story/credit-suisse-and-citigroup-join-other-major-banks-in-mortgage-bond-revival-with-a-twist-2019-08-20
In late 2017 Jacobson (along with lead writer Miriam Sjoblom) was making the same point about a shrinking supply, describing the post GFC years as "a once-in-a-career opportunity. " They also commented even back then on the fund size (more on that below).
A bit concerning is Jacobson's statement that "Pimco still likes the sector for its return potential and modest volatility: ... they totaled 37% as of March 2020." This seems to be overstated.
According to M*'s portfolio page (old-style version) non-agency RMBSs amounted to 8.57% (out of 120% bond exposure) of the portfolio. The largest sector was agency MBS pass throughs at 40.58% (out of 120%), followed by asset-backed securities at 33.63% (out of 120%). All as of March 31, 2020.
According to the fund's annual statement, summary section, non-agency MBSs constituted 19.5% of assets (out of 100%), and asset backed securities constituted 12.8%. We report, you decide
PIMCO says that securities (substantially all are bonds) constitute 154.5% of assets. And it reports non-agency MBSs constituting 30.3% of assets. So the non-agency RMBS percentage of securities (out of 100%) is, according to PIMCO, 30.3%/154% = 19.6%, or about what was reported in the annual statement's summary.
Regarding size: current size is $120B according to PIMCO ($117B according to M*). Jacobson made the same complaint about bloat in his 2018 analyst report (free) entitled "Is PIMCO Income Getting Too Big". According to that year's annual report, the fund's assets (all share classes) totaled $112B, or about the same size as now. But it had grown from about $69B the year before.
managers who use derivatives to express their market outlooks may be able to successfully manage more girth than managers who focus more on bond-picking to make a difference. PIMCO Total Return and its various clones, for example, were able to deliver peer-beating returns for many years even though the fund grew too large for bond-picking to make a significant difference in its returns. At its peak, PIMCO Total Return had nearly $300 billion in assets, and Gross managed various pools of money in that same style for other entities, too.
PIMCO's funds have their issues, but so far they seem to have handled them better than I would have expected. I might put the fund on a watch list for more problems. But as I wrote above, if I had reasons before for liking the fund, I would examine those reasons before jumping ship.
@Old_Skeet Thanks! I've looked at MIAQX before. I put it on hold for 3 reasons
1. short term record only,
2. I already own American Funds' target date funds and am concerned about putting too much bond money in AF's hands, even though managers may be different
3. I seem to remember reading that this fund has some unusual quirk to it, possibly assumes too much credit rating and/or duration risk
@FD100 I owned PTIAX before, but sold it. Don't remember why, but I think it may have been because its record is erratic (does well in the multi-sector arena, but has a few pretty bad years in there) Maybe I should take another look.
MIAQX looks promising. But, its interesting it is classified as a multisector fund. A quick credit quality/duration comparison to Diamond Hill High Yield (DHHIX) which I own suggests the two funds are close cousins. Anyway, I plan to check into MIAQX some more.
I have owned PONAX for several years and plan to continue to hold it. My suspicion is its short duration and heavy securitized weighting have recently hampered performance. But I continue to trust its management team for the long term. I own it, RCTIX, and PTIAX in about equal amounts.
Hi @Bitzer. I have to acknowledge, for me bond funds seem harder to dissect and understand what is in them than equity funds. There seems to be so many moving parts, liquidy, multiple sectors and categories, duration, quality ratings, number of holdings, assets under management.
With all that said, PIMIX and PIMCO as a company have some of the best proven managment and analysis talent in the bond world. Hard to beat Ivascyn as a fund manager. The 2 core bond funds I hold now are BAGSX and MWTRX. If you are unsure whether to sell or hold PIMIX, why not split the decision and "swap" 1/2 your PIMIX holding for another option to pair with it? Plenty of good options in this post.
@msf Thanks, your questions have helped greatly in my thought process
I am concerned about my category selection rather than my fund selection.
I purchased an active bond fund because I think active management can add value over passive index bond funds. I purchased a multsector fund bond fund to give the bond managers latitude in their holdings decisions. ... Thanks!
Glad to be of help. I completely understand the idea in looking for wider ranging funds, else why pay for the active management?
I originally started looking at multisector funds for myself as a way to dabble in foreign bond exposure, while, as you wrote, giving the manager leeway to decide on the allocation. I was left with the impression that multisector funds tend not to wander too widely. They may be very different from one another, but over time, each shows a decided preference for certain types of bonds.
Not that many seem to invest significantly in foreign bonds. So making my original selection was easier. (I've since tinkered with foreign bond funds, so my own reasons have changed over time.)
I mention all of this by way of suggesting again to take a look at core plus funds. Generally core plus funds carry a bit less credit risk than multisector funds, though there's a fair amount of overlap between the most aggressive core plus and the more tame multisector funds. Beyond that, it's not easy to tell the categories apart.
Here's how Vanguard describes the M* categories: Core Plus: - Consists of funds that invest primarily in investment-grade U.S. fixed income issues including government, corporate, and securitized debt. - Has greater flexibility than core offerings to hold noncore sectors such as corporate high-yield, bank loan, emerging markets debt, and non-U.S. currency exposures.
Multi-sector: - Consists of funds that seek income by diversifying their assets among several fixed income sectors, usually U.S. government obligations, U.S. corporate bonds, foreign bonds, and high-yield U.S. debt securities. - Typically holds 35% to 65% of their assets in securities that are not rated or are rated BB and below
M* shows 24 core plus funds to which it gives a credit rating of BB (junk). Same as the typical multisector fund. For example, PDBAX (not a recommendation, just an example).
Here's M*'s description of the PGIM family's bond strategy. It notes that this family's funds take on more credit risk than their peers. The way M*puts it, PGIM has "a distaste for Treasuries and agency mortgages, which PGIM has almost universally found too expensive for its tastes." M* goes on to note that "while the [PDBAX] portfolio bounced and rallied strongly in the weeks thereafter, it fell roughly 10% during the first three weeks of March." That was the cost of greater credit risk. https://www.morningstar.com/articles/980651/one-bond-managers-trip-through-the-latest-storm
Here's a graph showing how the relevant categories performed between March 1 and March 31. It also shows how PIMIX along with some other funds mentioned here did worse than the average core plus fund, but better than the typical multisector fund. The losses were:
Multisector category: 13.4% PIMIX: 12.4% PDBAX: 10% PTIAX: 9.3% Core plus category: 7.1% US Agg Bond index: 2.6%
PIMIX was a great fund until the beginning of 2018. PIMIX is still a decent fund I would go with PTIAX. LT good record + good downside protection. 2 more option are TSIIX and ADVNX
PIMIX was a great fund until the beginning of 2018. PIMIX is still a decent fund I would go with PTIAX. LT good record + good downside protection. 2 more option are TSIIX and ADVNX
These 3 funds are based on the following(which I post already): 1) 3 year average annually over 4.3% 2) SD(volatility) lower than 5 3) Morningstar return above average or high 4) Morningstar risk low/below average.
The PIMIX assessment was based solely on PIMIX previous years. In 2018 it was at 18% in its category but making 0.6% is pretty low when PTIAX made 2% and SEMMX made 3.9%. PIMIX was unique investing more in MBS but in the last years diversified to more global and HY but kept the distributions high. I used to own a very high % in PIMIX for years but sold in 01/2018. In 08/2019 we found out about the Argentinian fiasco bonds PIMIX had.
===============
PDBAX is not a M* Multi category fund but a Intermediate core plus fund (you can maybe called it Multi light because it has about 20% below IG per M*). It's more global with over 30% abroad It has 18.9% derivatives.
===============
Basically, PIMIX used to be the easiest fund to recommend but it's getting harder and why I trade
Hi guys, Yes, have owned PONAX even before it was that and the ER increase. Made money then and now on 3-26-20 made a large 5-digit buy and am up 6.93%---again, Fido numbers, not mine. In that timeframe, I sold all bond funds except this one.....and in the future this could go, too. God bless the Pudd
The PIMIX assessment was based solely on PIMIX previous years. In 2018 it was at 18% in its category but making 0.6% is pretty low when PTIAX made 2% and SEMMX made 3.9%.
Possibly the comparison with PTIAX alone was deemed not sufficiently persuasive. Regardless and for whatever reason, the ringer SEMMX was tossed in - a fund that isn't a multisector fund (per M*). Which begs the question: why stop with just the third best nontraditional fund of 2018?
Instead of cherry picking SEMMX, a 1* fund with a tarnished reputation, one could have cherry picked CLMAX, a 5* fund. Its 2018 performance of 7.58% not only nearly doubled that of SEMMX, but it made PTIAX look anemic.
As that column noted: "PIMCO's profits or losses on the bonds would depend significantly on the extent to which it hedged its foreign-exchange exposure." PIMCO stated that half of PIMIX's position (i.e. 1%) was dollar-denominated.
The proof is in the pudding. In August, PIMIX dropped 1.11% vs. the category's 0.83% gain. It made up that 1.94% underperformance in the remainder of the year by outperforming monthly by 0.65%, 0.40%, 0.36%, and 0.50%. (Data from M*)
Interesting how attention is called to some some black swan events with small impact, while others are disregarded ("You can't look at PIMIX YTD and compare it to BND (high rated bonds) when we had a black swan")
======== PDBAX is not a M* Multi category fund but a Intermediate core plus fund
People here generally understand that M* categories are not the be-all end-all (see, e.g. RPHYX). I mentioned PDBAX specifically because M* does not calls it multisector, writing:
I ...suggest[] again to take a look at core plus funds. Generally core plus funds carry a bit less credit risk than multisector funds, though there's a fair amount of overlap between the most aggressive core plus and the more tame multisector funds. ... For example PDBAX.
The data I presented and that you quoted supports that thesis. What was your point?
FWIW, ADVNX is not a Lipper multi-sector income fund but a flexible income fund.
========= 2) SD(volatility) lower than 5 3) Morningstar return above average or high
These are effectively the same test. Since standard deviation is a second moment, a single outlier will skew the calculation. If a fund's SD is not distorted by March's performance figure, then March's performance must not have been an outlier. This in turn virtually mandates that the fund's return be relatively high (i.e. without a significant dip).
Hi guys, Yes, have owned PONAX even before it was that and the ER increase. ... God bless the Pudd
PONAX's ER bounces around quite a bit because the SEC requires it to include the costs of traditional leveraging. These are genuine costs: borrowing $1 to make $2 still costs you interest on that dollar. But there are also ways to create leverage that have costs that aren't included in the ER.
This makes some funds appear cheaper than others, even though they're not.
If one of you bond meisters (maybe msf?) can explain this to me it would be surely appreciated. I am looking heavily into bond funds now as I reach retirement .M* rates the PTIAX bond avg rating as BB in the style box area . Yet it then reports these bond rating percentages as present in the fund. AAA 32.71%,AA 31.37% A 10% BBB 5.75% BB 1.33% B 0.92% Below B 8.59% and NR 9.13%. I have seen similar numbers on M* where the bond avg rating is far below the actual percentages which are much greater among the higher rated bonds. It would seem to me that the above PTIAX bond rating avg would be more like A and not BB as noted. Am I missing something here?
The simple way of computing an average credit rating would be to score AA's as 1, BB's as 2, etc. (with fractional adjustments for AAA, A, etc.). That's what many sources do.
M* instead weights each grade by the risk it represents. BBB bonds have around 4-5x the default risk of AAA bonds, CCC bonds have around 50-100x the default rate of AAA bonds. So it's pretty clear that a simple average won't do if what you're interested in is a sense of average default risk.
This linked to a story about an NBER white paper, Don't Take Their Word For It: The Misclassification of Bond Mutual Funds. The thesis was that funds themselves are overstating the quality of their holdings. That would tend to make even M*'s fund credit ratings too optimistic. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3474557 (Actual research paper)
This paper generated some back and forth between the authors and M*. I don't know if the M* page below represents the tail end of that exchange, but it should help anyone who's interested get started in sorting through the issues. https://www.morningstar.com/learn/bond-ratings-integrity
Credit Quality Weighting % Default Score Average Score AAA 15.00 0.00 0.00 AA 24.00 0.56 0.13 A 18.00 2.22 0.40 BBB 34.00 5.00 1.70 BB 9.00 17.78 1.60 B 0.00 49.44 0.00 Below B 0.00 100.00 0.00 Not Rated 0.00 49.44 0.00 Average Score 3.83
Since M* considers all funds with weighted average scores between 3.47223 and 9.02778 to be of BBB quality, this hypothetical fund would get a BBB rating from M*.
@msf. Thanks for explaining credit scores and how M* scores. I thought that it would be something like you explained it. Lower rated bonds have greater risk thus a higher default rating on the scale. Thanks again. Skeet
Love MWTRX for core (actually core plus, but I use it as core) and now FIXD ETF (seems to track MWTRX but beats it by a smidge due to lower ER); PTIAX and sticking with PIMIX until I see enough good reason not to.
@wxman123, I am keeping my position in Pimco Income as well which accounts for about an eight percent position in my income sleeve. I'm thinking it is pretty tough right now in bond world ... but, equities are so richly valued that I decided to overweight the income side of my portfolio over staying overweight in equities. Take care. Skeet
M* bond rating doesn't guarantee or forecast future returns and/or volatility, especially with managed funds with more moving parts. Even "simple" funds can't.
2002 Peak to trough Feb to March of 2020:...VCIT lost over 11%...PTIAX over 10%...PUCZX over 18%
PTIAX with lower rating bonds than VCIT lost less than VCIT. PTIAX lost less a lot less than PUCZX with similar rating bonds.
Another Myth is duration: it can't predict accurately price movement based on rates even with simpler funds. Rates change fluctuate over time with up/down movement.
Comments
We are still 90/10 but mostly in stocks for longer term retirement.
Have raised same question with Mother*s retired portfolio... thinking may add another good bond funds /index or add more fidelity2020 vs lsbrx but will wait for answers from board. Couple pimco funds have not hold up to pars recently.
Most manage funds may not outperform index funds longer term
Sorry to cause any confusion from previous posts
Regards
Why did you buy a multisector fund originally, and has that reason changed? Is this your only type of bond fund, or are you using it to get a little extra kick, recognizing that it will track equities more closely than will a vanilla bond fund?
PIMCO funds are incredibly opaque. But if I had to guess, I'd say that its middle-of-the pack performance (as opposed to better) is due to it keeping duration very short. Given that, its performance relative to other multisector funds remains impressive (and possibly due to leverage).
Duration is a factor one should consider. If you like PIMCO funds, still want a multisector fund, and don't mind the interest rate risk (i.e. you're betting that rates won't go up at least for a fair amount of time), you could look at PDIIX. It has a duration of around six years.
If you don't want a multisector fund and again are willing to live with the interest rate risk of a fund with a six year duration, then VBTLX / BND is fine. If you're willing to accept a bit of credit risk (VBTLX is 4/9 government bonds), you could look into core plus funds (or corporate funds) rather than core bond funds.
The bottom line is that what is best depends on what you're looking for.
http://quotes.morningstar.com/chart/fund/chart.action?t=pimix
I am concerned about my category selection rather than my fund selection.
I purchased an active bond fund because I think active management can add value over passive index bond funds. I purchased a multsector fund bond fund to give the bond managers latitude in their holdings decisions. This reason has not changed although passive bond fund management (BND) is looking pretty good now, but I will not performance chase.
Pimco Income is the only stand alone bond fund that I own (all of my other bond holdings are part of target date funds).
I will leave interest rate (duration) decisions to the experts. In my opinion he experts at Pimco Income are probably as good as any.
Decision made: I will stay with Pimco Income Thanks!
Additional comment. Interestingly, I also own Thornburg Strategic Income A shares (TSIAX) that @FD1000 commented own below. According to M* it is the number 2 year to date performer within my income sleeve with MIAQX being number 1. My muni fund FLAAX is listed as number 3.
From my perspective, it is nice to have FD1000 posting on the board with his insights to fixed income. His postings have helped me within the fixed income area of my portfolio.
You can't look at PIMIX YTD and compare it to BND (high rated bonds) when we had a black swan.
PDIIX is another Pimco fund, much smaller and managed by the same team.
I would go with PTIAX. LT good record + good downside protection. 2 more option are TSIIX and ADVNX.
These 3 funds have the following:
1) 3 year average annually over 4.3%
2) SD(volatility) lower than 5
3) Morningstar return above average or high
4) Morningstar risk low/below average.
See the list below
(link)
https://www.morningstar.com/articles/986480/why-pimco-income-remains-among-the-best
With the better financial reporting, "trust but verify" is good practice. (With much financial reporting, the "trust" part isn't justified.)
Jacobson writes that "Pre-financial-crisis supply in the [nonagency residential mortgage] sector has been shrinking." Those securities are often referred to as legacy RMBS (i.e. securities issued pre-financial crisis). And the statement's correct. However, the post GFC RMBS 2.0 sector (with stricter borrower guidelines) is growing. Though it is still minuscule; I don't want to suggest otherwise.
https://www.marketwatch.com/story/credit-suisse-and-citigroup-join-other-major-banks-in-mortgage-bond-revival-with-a-twist-2019-08-20
In late 2017 Jacobson (along with lead writer Miriam Sjoblom) was making the same point about a shrinking supply, describing the post GFC years as "a once-in-a-career opportunity. " They also commented even back then on the fund size (more on that below).
A bit concerning is Jacobson's statement that "Pimco still likes the sector for its return potential and modest volatility: ... they totaled 37% as of March 2020." This seems to be overstated.
According to M*'s portfolio page (old-style version) non-agency RMBSs amounted to 8.57% (out of 120% bond exposure) of the portfolio. The largest sector was agency MBS pass throughs at 40.58% (out of 120%), followed by asset-backed securities at 33.63% (out of 120%). All as of March 31, 2020.
According to the fund's annual statement, summary section, non-agency MBSs constituted 19.5% of assets (out of 100%), and asset backed securities constituted 12.8%. We report, you decide
PIMCO says that securities (substantially all are bonds) constitute 154.5% of assets. And it reports non-agency MBSs constituting 30.3% of assets. So the non-agency RMBS percentage of securities (out of 100%) is, according to PIMCO, 30.3%/154% = 19.6%, or about what was reported in the annual statement's summary.
Regarding size: current size is $120B according to PIMCO ($117B according to M*). Jacobson made the same complaint about bloat in his 2018 analyst report (free) entitled "Is PIMCO Income Getting Too Big". According to that year's annual report, the fund's assets (all share classes) totaled $112B, or about the same size as now. But it had grown from about $69B the year before.
Mitigating that, Christine Benz (M*) comments that (at least with respect to vanilla bond funds): PIMCO's funds have their issues, but so far they seem to have handled them better than I would have expected. I might put the fund on a watch list for more problems. But as I wrote above, if I had reasons before for liking the fund, I would examine those reasons before jumping ship.
1. short term record only,
2. I already own American Funds' target date funds and am concerned about putting too much bond money in AF's hands, even though managers may be different
3. I seem to remember reading that this fund has some unusual quirk to it, possibly assumes too much credit rating and/or duration risk
@FD100 I owned PTIAX before, but sold it. Don't remember why, but I think it may have been because its record is erratic (does well in the multi-sector arena, but has a few pretty bad years in there) Maybe I should take another look.
I have owned PONAX for several years and plan to continue to hold it. My suspicion is its short duration and heavy securitized weighting have recently hampered performance. But I continue to trust its management team for the long term. I own it, RCTIX, and PTIAX in about equal amounts.
With all that said, PIMIX and PIMCO as a company have some of the best proven managment and analysis talent in the bond world. Hard to beat Ivascyn as a fund manager. The 2 core bond funds I hold now are BAGSX and MWTRX. If you are unsure whether to sell or hold PIMIX, why not split the decision and "swap" 1/2 your PIMIX holding for another option to pair with it? Plenty of good options in this post.
I originally started looking at multisector funds for myself as a way to dabble in foreign bond exposure, while, as you wrote, giving the manager leeway to decide on the allocation. I was left with the impression that multisector funds tend not to wander too widely. They may be very different from one another, but over time, each shows a decided preference for certain types of bonds.
Not that many seem to invest significantly in foreign bonds. So making my original selection was easier. (I've since tinkered with foreign bond funds, so my own reasons have changed over time.)
I mention all of this by way of suggesting again to take a look at core plus funds. Generally core plus funds carry a bit less credit risk than multisector funds, though there's a fair amount of overlap between the most aggressive core plus and the more tame multisector funds. Beyond that, it's not easy to tell the categories apart.
Here's how Vanguard describes the M* categories:
Core Plus:
- Consists of funds that invest primarily in investment-grade U.S. fixed income issues including government, corporate, and securitized debt.
- Has greater flexibility than core offerings to hold noncore sectors such as corporate high-yield, bank loan, emerging markets debt, and non-U.S. currency exposures.
Multi-sector:
- Consists of funds that seek income by diversifying their assets among several fixed income sectors, usually U.S. government obligations, U.S. corporate bonds, foreign bonds, and high-yield U.S. debt securities.
- Typically holds 35% to 65% of their assets in securities that are not rated or are rated BB and below
M* shows 24 core plus funds to which it gives a credit rating of BB (junk). Same as the typical multisector fund. For example, PDBAX (not a recommendation, just an example).
Here's M*'s description of the PGIM family's bond strategy. It notes that this family's funds take on more credit risk than their peers. The way M*puts it, PGIM has "a distaste for Treasuries and agency mortgages, which PGIM has almost universally found too expensive for its tastes." M* goes on to note that "while the [PDBAX] portfolio bounced and rallied strongly in the weeks thereafter, it fell roughly 10% during the first three weeks of March." That was the cost of greater credit risk.
https://www.morningstar.com/articles/980651/one-bond-managers-trip-through-the-latest-storm
Here's a graph showing how the relevant categories performed between March 1 and March 31. It also shows how PIMIX along with some other funds mentioned here did worse than the average core plus fund, but better than the typical multisector fund. The losses were:
Multisector category: 13.4%
PIMIX: 12.4%
PDBAX: 10%
PTIAX: 9.3%
Core plus category: 7.1%
US Agg Bond index: 2.6%
I would go with PTIAX. LT good record + good downside protection. 2 more option are TSIIX and ADVNX
2018 returns:
PTIAX: 2.01%
TSIIX: 0.68%
PIMIX: 0.58% (still top quintile)
Multisector bonds: -1.52%
ADVNX: -1.99%
Typo? 2019 perhaps?
1) 3 year average annually over 4.3%
2) SD(volatility) lower than 5
3) Morningstar return above average or high
4) Morningstar risk low/below average.
The PIMIX assessment was based solely on PIMIX previous years. In 2018 it was at 18% in its category but making 0.6% is pretty low when PTIAX made 2% and SEMMX made 3.9%. PIMIX was unique investing more in MBS but in the last years diversified to more global and HY but kept the distributions high. I used to own a very high % in PIMIX for years but sold in 01/2018. In 08/2019 we found out about the Argentinian fiasco bonds PIMIX had.
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PDBAX is not a M* Multi category fund but a Intermediate core plus fund (you can maybe called it Multi light because it has about 20% below IG per M*).
It's more global with over 30% abroad
It has 18.9% derivatives.
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Basically, PIMIX used to be the easiest fund to recommend but it's getting harder and why I trade
Yes, have owned PONAX even before it was that and the ER increase. Made money then and now on 3-26-20 made a large 5-digit buy and am up 6.93%---again, Fido numbers, not mine. In that timeframe, I sold all bond funds except this one.....and in the future this could go, too.
God bless
the Pudd
Possibly the comparison with PTIAX alone was deemed not sufficiently persuasive. Regardless and for whatever reason, the ringer SEMMX was tossed in - a fund that isn't a multisector fund (per M*). Which begs the question: why stop with just the third best nontraditional fund of 2018?
Instead of cherry picking SEMMX, a 1* fund with a tarnished reputation, one could have cherry picked CLMAX, a 5* fund. Its 2018 performance of 7.58% not only nearly doubled that of SEMMX, but it made PTIAX look anemic.
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Argentinian fiasco? PIMIX had just a 2% exposure to bonds that dropped in value to 71¢ on the dollar.
https://www.pionline.com/markets/pimcos-bet-argentine-bond-paying-75-rate-hit-peso-rout
As that column noted: "PIMCO's profits or losses on the bonds would depend significantly on the extent to which it hedged its foreign-exchange exposure." PIMCO stated that half of PIMIX's position (i.e. 1%) was dollar-denominated.
The proof is in the pudding. In August, PIMIX dropped 1.11% vs. the category's 0.83% gain. It made up that 1.94% underperformance in the remainder of the year by outperforming monthly by 0.65%, 0.40%, 0.36%, and 0.50%. (Data from M*)
Interesting how attention is called to some some black swan events with small impact, while others are disregarded ("You can't look at PIMIX YTD and compare it to BND (high rated bonds) when we had a black swan")
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PDBAX is not a M* Multi category fund but a Intermediate core plus fund
People here generally understand that M* categories are not the be-all end-all (see, e.g. RPHYX). I mentioned PDBAX specifically because M* does not calls it multisector, writing: The data I presented and that you quoted supports that thesis. What was your point?
FWIW, ADVNX is not a Lipper multi-sector income fund but a flexible income fund.
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2) SD(volatility) lower than 5
3) Morningstar return above average or high
These are effectively the same test. Since standard deviation is a second moment, a single outlier will skew the calculation. If a fund's SD is not distorted by March's performance figure, then March's performance must not have been an outlier. This in turn virtually mandates that the fund's return be relatively high (i.e. without a significant dip).
This makes some funds appear cheaper than others, even though they're not.
Here's a M* article on this phenomenon and how M* adjusts the ER figures it reports.
https://www.morningstar.com/articles/969612/one-expense-ratio-to-rule-them-all
Currently, 0.55% of the ER for PONAX (and other share classes) is this interest expense.
See footnote 1 in the summary prospectus.
M* instead weights each grade by the risk it represents. BBB bonds have around 4-5x the default risk of AAA bonds, CCC bonds have around 50-100x the default rate of AAA bonds. So it's pretty clear that a simple average won't do if what you're interested in is a sense of average default risk.
Source:https://www.livewiremarkets.com/wires/quantifying-the-risk-of-bonds-with-s-p-credit-ratings
Add to this the fact that M* counts non-rated (NR) bonds as BB or B, and one begins to see how PTIAX could have a weighted credit risk "score" of BB.
Ted posted a thread last November entitled Are Bond Funds Misreporting Their Portfolio Holdings?
https://mutualfundobserver.com/discuss/discussion/54229/are-bond-funds-misreporting-their-portfolio-holdings
This linked to a story about an NBER white paper, Don't Take Their Word For It: The Misclassification of Bond Mutual Funds. The thesis was that funds themselves are overstating the quality of their holdings. That would tend to make even M*'s fund credit ratings too optimistic.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3474557 (Actual research paper)
This paper generated some back and forth between the authors and M*. I don't know if the M* page below represents the tail end of that exchange, but it should help anyone who's interested get started in sorting through the issues.
https://www.morningstar.com/learn/bond-ratings-integrity
One of the papers M* links to gives this hypothetical fund scoring: Since M* considers all funds with weighted average scores between 3.47223 and 9.02778 to be of BBB quality, this hypothetical fund would get a BBB rating from M*.
Examples:
VCIT=all IG(investment grade bonds) and simpler - M* rating BBB.
PTIAX-M* rating BB
PUCZX-M* rating BB
2002 Peak to trough Feb to March of 2020:...VCIT lost over 11%...PTIAX over 10%...PUCZX over 18%
PTIAX with lower rating bonds than VCIT lost less than VCIT.
PTIAX lost less a lot less than PUCZX with similar rating bonds.
Another Myth is duration: it can't predict accurately price movement based on rates even with simpler funds. Rates change fluctuate over time with up/down movement.