ZEOIX

ET91

I invested in ZEOIX a little while ago. I was attracted by their statement: low volatility and absolute returns.

Apparently low volatility and absolute returns look like -8.7% (2022) and -3.3% (YTD as of 6/30/2023).

In their latest letter they mentioned that bonds of two companies they own blew up.

The latest news is they suspended the dividend for the month of July. No explanation.

Not sure if anyone owns this fund. I invested in this fund thinking that my money will be protected. Unfortunately, that wasn't the case. I didn't want to send Mr. Sherman all my play it safe cash.

Not sure if anyone owns this fund.

Sven

Not here. Zero funds were acquired by Osterweis a year ago. Attached is a note from MFO posting. https://mutualfundobserver.com/discuss/discussion/comment/148769/#Comment_148769

Please review the Great Owl funds listed under “Funds” tab above. [Charles who does all of the statistical work - ds edit] has done the great work to compiled the list. One come to mind is Dodge & Cox Income, DODIX. YTD return is +4% and it is on top of its category core-plus bond fund.

MikeM

Interestingly, there was a lot of discussion on ZEOIX back in 2020 as a "cash alternative". It was being compared to RPHYX in a positive manner. Coincidently, RPHYX was re-opening at that time after being closed for quite a while.

Type ZEOIX into the search bar and review all the chatter just a few years ago.

dtconroe

I know ZEOIX well, invested in it briefly, for a short period, several years ago, and continued it on a M* Watchlist. I maintained it in a "category" of funds I entitled "cash alternative" options, that had a history of low SD. As the OP noted, it had periods of "lows" that did not meet my criteria, for use on a longer term basis, to preserve principal. I also had other funds on my "watchlist" such as BTMIX, RPHIX, FPFIX, etc. and ended up using those other 3 funds, more extensively over the years, but sold them all in early 2022 when they started deteriorating in a manner that threatened the principal in my Taxable Brokerage portfolio. None of these bond oefs qualified for buy and hold purposes, nor as a "cash substitute", but when I owned them you could not get CDs, MMs, etc. that provided a safer return, so you had to take more risks, to get more rewards, but I did it as a very active manager of these funds, andtraded them as needed, to preserve principal, and was fully aware of the risks of these funds.

David_Snowball

Charles's take, if I recall correctly, is that Zeo suffered a nearly irreparable loss when Venk lost his co-manager / analysis who headed back home to Canada.

msf

Recent (2022-2023) ZEOIX decline aside, my take back in 2017 was that ZEOIX at the time had slightly better performance than RPHIX but wasn't worth the extra volatility. "If I'm looking for an enhanced cash fund, I'm quite willing to give up a bit of performance for a more stable fund."
https://mutualfundobserver.com/discuss/discussion/comment/87999/#Comment_87999

BTMIX was a fund I lauded when it launched based on its managers' track records. Like @dtconroe, I bailed in early 2022, when it seems like any bond fund that had even a millisecond longer duration was getting creamed.
https://mutualfundobserver.com/discuss/discussion/comment/118183/#Comment_118183

But RPHIX is a unique fund, and IMHO remains a sold "cash substitute". According to Portfolio Visualizer, on a monthly basis it lost 0.02% in March 2022. Its max drawdown was 0.20% later in the year (June 2022). Still, a loss is a loss. Though compared with cash (PV uses 3 mo T-bills from FRED), it outperformed on the year by more than a percent, 2.96% vs 1.82%.
PV 2022 comparison of funds

RPHIX continues to pace cash in 2023 with no monthly losses. YTD (per M*) is 3.14%, putting it on a pace to return 5% or better (especially with interest rates higher now than in Jan). Though that's not a whole lot better than T-bills (remembering that they were yielding less in Jan). Maybe even slightly worse after taxes in a high tax state.
PV 2023 comparison of funds

Applying the same reasoning as with ZEOIX (give up a little yield for stability), T-bills seem better in the short term. But not by a lot either way.

sma3

I owned a lot of ZEOIX and was bothered when the NAV dropped by more than a couple of %. I called them and their explanation was that several of their sort term high yield bonds were "re-priced" by mark to market, while previously they had been "estimating" the price as they traded so infrequently. They reassured me that these bonds, and all their other bonds were short term and would soon mature at par, so the "loss" would disappear.

Made sense, but when the % drop persisted and did not seem predictable, I bailed. This was right below a more significant drop

I would be careful with funds that invest in securities that trade infrequently. This requires them to estimate or pay someone else to estimate their price. It is the fund company's interest to use a higher price than what the market may eventually give them, when one of these securities eventually trades.

During times of heavy redemptions, if the fund is selling a portion of such a position, as I understand it they have to use that sale price to re-price all the remaining bonds in the portfolio. BOOM!

yogibearbull

That is a common problem with bonds.

Most bonds don't trade often and funds are forced to use matrix-pricing, i.e. the prices of something else with similar quality and duration that traded. It is more pronounced for lower-rated bonds.

Only Treasuries are the liquid bond market.

While this doesn't apply to funds, banks are able to divide their bond portfolios into mark-to-market (MTM; trading portfolios) and hold-to-maturity (HTM; long-term holdings priced just at book values) - this caused serious problems for several regional banks. This is something unique to the US banks and US accounting.

ET91

Thank you all for your replies. I appreciate you sharing your knowledge.

Charles

Brad Cook.
Managed ZEOIX portfolio from Mar 2013 to Jan 2019.