Can someone explain PYLD’s apparent negative 90% cash position? What am I missing?

hank

Apologies for the less than perfect cut & paste from M*. But think illustrates the point I’m wondering about. The fund is PYLD - Pimco Multi-Sector Bond ETF. How is it that they’re 190% in fixed income and -90% in cash? The only thing I can think of is leverage. But doubling-down on their bond bets by borrowing so much seems out of character for a fund like this and knowing a bit about the Pimco managers (including Dan Ivascyn). Is there another explanation for this? Shorts? Would they really go short to that 90% extent? Feels like a powder keg. I do not currently own, but am considering it. Little experience with PIMCO. Good reputation. Compared to a fund like JPIE how would you rate the relative risk characteristics?

Thanks in advance for your thoughts.

Asset Class Net Short Long Cat. Index

U.S. Equity 0.00 0.00 0.00 1.39 0.00

Non-U.S. Equity 0.00 0.00 0.00 0.15 0.00

Fixed Income 190.05 1.74 191.79 112.15 99.98

Other 0.20 0.00 0.20 0.15 0.00

Cash -90.25 92.77 2.52 13.39 0.00

Not Classified 0.00 0.00 0.00 3.42 0.02

Mark

While I have none of the skills or knowledge to tell you precisely why this is so I went looking around to satisfy my curiosity. I was thinking that it might have something to do with their derivative positions but I don't know.

Anyway I found THIS

Maybe it is, maybe it isn't.

larryB

@Hank. Since we are looking at Pimco Funds asset allocation please check out the popular PIMIX. As The Who said so many years ago,,,,, Can’t Explain.

catch22

@larryB Excellent recall and We Won't Get Fooled Again

hank

Thanks both. Larry, PIMIX is only 12.5% negative cash. I’d consider moving in but need an easier to trade etf for the time being.

M* writes highly of PYLD (Bronze rated, however). I’ve held it for several months in the past. Steady eddy during that time. Even suggested it to a poster recently. It has a “average credit rating / surveyed” of A which is well above some other multi-sector funds, including the one I referenced earlier from J.P. Morgan. It has, however, a very high weighting to “Securitized Debt” obligations which are hard to analyze..

Interestingly, if you believe M* (??) Rick Rieder’s year old etf BINC is sitting in 43% cash. Geez. That doesn’t sound like Rieder. I’ve always considered bond funds more difficult to understand than most equity funds. I think this discussion touches on some of the reasons. Maybe “Only the Shadow knows.”

What I think is that PYLD is roughly short the same amount of bonds that it holds long, thinking their superior analysis will win out over time. Reasonable - but unlike anything I’ve seen in a bond fund.

yogibearbull

PYLD uses derivatives that can be long or short. Pimco relies heavily on derivatives for most of its funds. Often, M* is confused, so are many investors. But results may be what matter. One can avoid Pimco black-box by simply avoiding its funds, but that may not be practical.

From PYLD Prospectus,

".....The Fund seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its assets in a multi-sector portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements. “Fixed Income Instruments” include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities....."

larryB

I guess it boils down to a simple question: should one invest in something they don’t understand,,,, never knowing what’s in the black box? Or should past performance and the reputation of the manager be enough reason to invest?

yogibearbull

I do own PIMIX, PYLD and some Pimco CEFs.

I don't fully understand Pimco's black-box, but based on its existence and superior record for YEARS, I make an exception.

But I don't make such exceptions lightly. In general, I stay away from funds that rely heavily on options/futures/derivatives.

I suppose this falls in the categories of not fully knowing what my car mechanic does, or what my spine surgeon does. I just pretend to "understand" those broadly.

hank

Thanks for the details & the honesty. Yogi.

There’s no perfect bond fund. Short duration isn’t likely to get you the yield you want. Longer duration can feel like a roller coaster when rates move sharply. Many “core” bond funds dip heavily into BB and below. These can appear very safe & steady for long periods (as in the recent past) but can tank rapidly in a recession or during unexpected crisis. Both the highly rated JPIB and JPEI sometimes hold up to 50% in lower rated bonds, but are below that presently (30-35% as I recall).

Yes - @yogibearbull - M* does tend to get things mixed up.

AndyJ

Pimco has a totally new website since I last looked (weeks ago). PYLD shows as -31.09% "net other short duration instruments," which if memory serves, is not exclusively cash.

+1, @yogibearbull.

FD1000

Instead of PIMIX or PYLD(both are similar), look at RCTIX.
One year chart(https://schrts.co/JRNGpRmT)
3 year chart(https://schrts.co/RfSCENuJ)

The above is not a recommendation or a guarantee; do your own due diligence.

I sold PIMIX in 01/2018 after I invested over 50% of my money in it for years.

larryB

@catch22. And excellent recall to you. Saw The Who at Cobo Hall around 1970 or so. Memorable.

hank

” -31.09% "net other short duration instruments,"

Thanks @AndyJ. Sounds like M* was off by roughly a factor of 3. When I held PYLD in the past, Fido’s analytics didn’t seem to notice anything abnormal. Appeared to read it as a normal bond allocation in computing my allocation across all assets.

hank

Thanks FD. I’m trying to go up the ladder in credit quality for portfolio purposes. Also unsure of how big a distribution I’ll be taking or exactly when. Would prefer not to buy into a (OEF) mutual fund at this time.

larryB

It seems as though PYLD has a broad enough mandate to range wide and far,,,, up and down the credit quality ladder. And we won’t know what they are doing till after the fact. I too would prefer an ETF but I made a promise to myself to avoid leverage and black boxes.

hank

This was a tough day for duration. The 10-Year spiked to 4.34% (10 basis points).

A few bond funds I watch, with today’s move …


JPIE -0.09%

LSST -0.14%

BINC -0.15%

PYLD -0.16%

GNMA -0.32%

JPIB -0.40%

BRTR -0.52%

GBAB -0.88%

It’s of little importance longer term. But if you’re trying to keep daily volatility lower or balance out a risk somewhere else (equities, junk bonds, commodities) than you might care about how your bond fund moves under varying circumstances.

msf

We've had this discussion before - see DSEEX: 100% notional exposure to stocks, 100% actual exposure to bonds, and (roughly) -100% effective exposure to cash. (Per M*, it's currently -91%.)

DSEEX is a good case study because it is conceptually simple. Derivatives provide the exposure to a stock index, and the "real" cash is invested in bonds. Fairly transparent relative to Pimco.

It's not the negative cash exposure per se that's confusing, it's Pimco's management in general. As yogi suggested, investing with Pimco is to some extent a matter of faith.

hank

BINC looks a lot better on Blackrock’s website than at M*. Geeeeze.

It has no cash (actually a few percent negative) compared to M*’s reported 43%!
And very little sub investment grade paper - roughly 25% (but almost all BB). You couldn’t tell that from M *. Looks like a currently moderate duration of 3-5 years.

Interestingly, Rieder has gone into international holdings with about 30% (+ - ) listed as non-US.
I don’t worry much about historical performance with bond funds. Much more interested in what they hold. We’ve been through some very abnormal times.

Derivatives are fine. (thanks @msf) They are used near exclusively by commodity funds (Who wants a boat-load of hogs?) But the ice below me feels a little thicker when they’re not being employed to large extent. I’ve spent hours exploring the world of bond funds, as might appear. I did come across mention that certain tactics don’t work as well for the manager in an ETF as they do with an OEF. But don’t remember the exact context.

Thanks all. Very helpful.

msf

You're looking at M*'s economic exposure view, not a the "classic" asset view.

The Economic Exposure View displays the sensitivity of portfolio return to various asset classes. Economic Exposure will model the impact of these instruments based on their inherent leverage rather than solely based on their market values. Compared to the Classic Asset Allocation, this view provides additional clarity to investors around how funds use derivatives to adjust the portfolio’s risk profile in addition to more clearly depicting sources of risk and return.

More clear to some, perhaps.

M*'s "classic" view is a bit closer to what you described:

Asset Class	Net	Short	Long	Cat.	Index
U.S. Equity	0.00	0.00	0.00	1.39	0.00
Non-U.S. Equity	0.00	0.00	0.00	0.15	0.00
Fixed Income	120.71	12.73	133.44	112.15	99.98
Other		-0.07	0.10	0.03	0.15	0.00
Cash		-21.69	77.90	56.21	13.39	0.00
Not Classified	1.05	0.00	1.05	3.42	0.02

Then there's M*'s market value view that shows net cash exposure of -3.86%. That is close to what you described. (Note that Blackrock describes its allocation table as percentages of market value.) Differences are likely due to Blackrock reporting as of June 25 and M* reporting as of June 13.

P.S. When you cut-and-paste these tables, precede them with <PRE> and follow them with </PRE>. Asside from needing to add a few tabs to get the alignment right, this will display the tables cleanly. (I had to add a tab after "Other" and after "Cash".)

Blackrock reports 14.23% B rated (as well as 21.79% BB rated); this is close to M*'s 13.96% B rated and 20.82% BB.
https://www.blackrock.com/us/individual/products/331752/blackrock-flexible-income-etf

hank

Thanks for all the tips @msf / I ‘ve been tripped up before by the different M* views. Yours is a brief lesson I’ll keep referring to for reference! Often find myself hunting for old threads that contained some special nugget of information.

FD1000

hank

Thanks FD. I’m trying to go up the ladder in credit quality for portfolio purposes. Also unsure of how big a distribution I’ll be taking or exactly when. Would prefer not to buy into a (OEF) mutual fund at this time.

Since we are discussing Multi sector, credit quality, it is less important, especially in a black box like PIMIX,PYLD. The whole idea is to let the managers decide on what bonds to buy and make the right switches.
Add to it the use of options/futures/derivatives with PIMIX,PYLD and you don't know what you get. The 1-3 charts proved that RCTIX is a better risk/reward fund, and BTW, it's distribution is higher too.
The use of ETF is inferior because some people may panic and sell in the middle of the day just to find later the price reverse.
Good luck.

racqueteer

FD1000 said:

The use of ETF is inferior because some people may panic and sell in the middle of the day just to find later the price reverse.

Cuts both ways, though. Some may hold the OEF throughout the day just to find out that the price may have been higher had they been able to sell an ETF early on!

FD1000

Investors who own ETFs trade more, more trading usually ends in lower performance.
For the average Joe, funds are better.

Old_Joe

@hank said- "Often find myself hunting for old threads that contained some special nugget of information."

On the main "Discussions" and "Discussions that have comments" pages each thread has a small "star" icon out at the end. If you click on that star it saves the thread to your "My Bookmarks" list, making it very easy to find that thread in the future.

racqueteer

So what you're saying mirrors my own statement. You can find people for which each approach could be 'correct' or 'incorrect'. Your original post said nothing about "the average Joe". For someone who trades, the fund is probably the inferior product. As with so many things, it depends.

hank

Old_Joe said:

On the main "Discussions" and "Discussions that have comments" pages each thread has a small "star" icon out at the end. If you click on that star it saves the thread to your "My Bookmarks" list, making it very easy to find that thread in the future.

Thanks @Old_Joe

A very educational thread. I was up half the night poring through income-oriented ETFs and CEFs. Some very interesting prospects - maybe for another day. I’ll keep my final selection to myself. It’s not always a matter of finding the very best fund out there. Sometimes it’s a matter of buying what complements the other 90% of your portfolio and serves the overall risk profile you are working to maintain.

Not opposed to owning a black box or two. To me a “black box” is an often complex difficult to understand methodology which the fund management firm / fund manager probably understand better than the shareholder does. They typically employ derivatives, leverage, shorting strategies, computer driven algorithmic trading - or a combination of these. Almost always they are more expensive than funds designed for “the average Joe”.

Looking around for a better definition of an Black Box, I uncovered an interesting article from 2022 by our own Charles Lynn Bolin.

FD1000

racqueteer said:

So what you're saying mirrors my own statement. You can find people for which each approach could be 'correct' or 'incorrect'. Your original post said nothing about "the average Joe". For someone who trades, the fund is probably the inferior product. As with so many things, it depends.

I agree in principal with your statement but not in actuality, because average Joes are over 90% and great traders are less than 10%.
So, depends is a great word, but not when 90+% are your average Joes.

racqueteer

FD1000 said:

racqueteer said:

So what you're saying mirrors my own statement. You can find people for which each approach could be 'correct' or 'incorrect'. Your original post said nothing about "the average Joe". For someone who trades, the fund is probably the inferior product. As with so many things, it depends.

I agree in principal with your statement but not in actuality, because average Joes are over 90% and great traders are less than 10%.
So, depends is a great word, but not when 90+% are your average Joes.

The point is, FD, that when you make sweeping generalizations, which allow for no exceptions, a single instance which is contrary makes the original statement incorrect. "In principle", or "in general" have nothing to do with anything after the fact. Had you included the distinctions you now want to add at the time, then you would have been fine, but you didn't choose to do that (You call that "wiggle room"). That makes your original statement simply not true; though your subsequent ones may be.

Sweeping generalizations are seldom true; they are, in effect, predictions of the future and allow for no exceptions. That's why I avoid them in most cases (See what I did there?). When you're tempted to say something like "This results in this"; it has to be true 100% of the time, or it's incorrect!

FD1000

I read what I said, and I found that if I added "MOST Investors who own ETFs trade" it would be better.
So, instead of being only 90% correct, I could have been 100%. I'll take that.

You start to remind me Bill Clinton...what is is?

Now, let's all check every word someone says on any post, and we are going to have a lot of unwanted consequences.

racqueteer

Which do you prefer, FD, 100% correct or 90% correct and 10% wrong (which makes it wrong)? I personally prefer to make my statements 100% right if at all possible - Don't you? If nothing else, it reduces the occasions when I'm wrong. There are far too many of those occasions as it is!

Derf

Picky, picky, picky. I've done it & had it returned. I've miss read & miss reported, sorry about that. DYOD !
My 2 cents, Derf