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"Also I have a quirk when it comes to OEF bond funds. I prefer the ones that pay daily vs. the ones that pay monthly."
I share that feeling because the monthly ones give the illusion of smoother NAV than what the NAV otherwise would be. They do not allow you to see in real time if they are faltering.
M* chart shows you the daily increase even if the NAV is the same and it's a monthly pay. This is how I can guess pretty close what the monthly end distribution will be.
"Also I have a quirk when it comes to OEF bond funds. I prefer the ones that pay daily vs. the ones that pay monthly."
I share that feeling because the monthly ones give the illusion of smoother NAV than what the NAV otherwise would be. They do not allow you to see in real time if they are faltering.
M* chart shows you the daily increase even if the NAV is the same and it's a monthly pay. This is how I can guess pretty close what the monthly end distribution will be.
Very few seem to understand daily vs monthly. There was similar situation on FD’s board where there was total confusion in early August trying to figure out the daily decline on one of the CLO ETFs after it had paid its monthly dividend a day or so earlier.
Let’s look at a daily accrual bond fund whose net asset value is unchanged an entire month. You made money because the daily accrued dividends are paid out end of month with no impact on month end nav. On a monthly pay bond fund if the nav is unchanged the entire month you didn’t make anything. Its dividend is paid end of month and the nav is adjusted downward by the amount of the dividend. An extreme example to illustrate my point since it is rare for a monthly pay to be unchanged an entire month.
Edit to the above for better clarity. Let’s say it is a volatile month with bullish and bearish conditions impacting a daily accrual bond fund. The price is all over the place but ends unchanged. You made money - the dividends. On a monthly pay bond fund that is all over the place and the dividends are bled into the nav during the month but it still is unchanged end of month you break even. In no way am I implying a daily accrual fund outperforms a monthly pay. My quirk is I just enjoy making money each and every day of the month, especially 3 day weekend holidays with the daily accruals.
Edit. The above example not applicable to the CrossingBridge funds as they are priced in micro cents daily and you could never see an unchanged NAV day after day. Not sure I have seen bond funds priced in such manner.
Several years ago, in a discussion of those two types of bond div accounting, Yogi coined "accrual" vs. "NAV flow" as handles for them, which has always seemed pretty transparent language to me.
If we want to get accounting geeky, both are accruals: one to your account and the other to the NAV. The primary difference is where it is reflected.
The secondary difference perhaps is if you sold (before ex-date) a fund whose NAV is pregnant with accrued dividend, you are treating the accrued dividend as capital in nature whereas if you sold the same fund on ex-div date then the accrued dividend will be paid to you (with an equivalent drop in NAV) and is ordinary income in nature (barring limited exceptions). The reverse also applies when you are buying into the fund. If you buy a fund whose NAV is pregnant with dividend, then you are paying to get some of it back as a dividend (ordinary income). These differences are magnified if the dividend is paid quarterly or annually, rather than monthly. You will also notice the difference if your holding in the fund is in seven figures or more. This time of transaction distinction does not apply to funds that accrue div to your account and not to the NAV. This tax chatter may be useful only if you hold the fund in a taxable account. However, it may not be wise to delay your sale for tax reasons.
The third and minor difference is if you are transferring a fund from one brokerage to the other, more likely the fund that accrues div to the NAV transfers cleanly. But this is not a good reason to choose which fund one should invest in.
The above is not an exhaustive listing or discussion.
Funds don't make this easy, but it's possible to figure out from prospectus whether a fund accrues dividends daily and pays monthly (from an accrual account), or the dividends are flowed-through the NAV.
In the latter case, there will be some language in the prospectus alerting that the fund NAV will be reduced on ex-dividend date, and possibly to avoid buying the (taxable) dividend just ahead of the ex-div date. If such language is missing, then the fund likely accrues daily but pays monthly - and the NAV doesn't change due to dividend payout on ex-dividend date.
Another way to figure this out is looking at the actual-prices for _TICKER in Stockcharts and see if there are dips on ex-distribution dates.
"The above example not applicable to the CrossingBridge funds as they are priced in micro cents daily and you could never see an unchanged NAV day after day. Not sure I have seen bond funds priced in such manner."
The illusion of smoother NAV applies even here. On a day to day basis, I like to know the movement in NAV due to market conditions vs from accrual of YTM. That is not readily apparent in all the funds that accrue earnings through the NAV, whether they are priced through micro cents or not.
I am guessing more and more funds go this route because it is administratively simpler (cheaper) for the fund and most investors do not care whether the earnings are accrued to the investor's account or to the NAV. But the discerning large investor may decide to delay a purchase if the earnings are accrued to the NAV.
In the NRDCX thread. I asked whether NRDCX accrues div to the investor's account or to the NAV and I only received the answer without anyone asking why I cared. I assumed everyone in this forum knew the reasons.
P.S.: I overspent my daily quota of internet time.
Today seemed like a good day to sell THOPX and WCPNX. That leaves MNHAX as my longest duration bond fund. It has been fairly steady so far. I'll be keeping an eye on it. Here is the Yahoo print of the Bloomberg story mentioned by @BaluBalu above.
Today seemed like a good day to sell THOPX and WCPNX. That leaves MNHAX as my longest duration bond fund. It has been fairly steady so far. I'll be keeping an eye on it. Here is the Yahoo print of the Bloomberg story mentioned by @BaluBalu above.
keep an eye out for securitized public issuances of private loans as spreads in private loans become unattractive and demand dries up in private markets. You can always find suckers in public markets. I am guessing we have not seen all the lives of this cat yet.
I tend to buy active and unconstrained bond funds and let the manager decide what the credit risk is, but I am sure a lot of unsuspecting people will be sold a bill of goods when the "private credit" ETFs come out
@hank has mentioned that, after some robust economic numbers lately, the perceived, inevitable rate cut cycle might NOT continue as scheduled; "as scheduled" in most investors' minds, at least. I am starting to agree. Where's the neutral rate, if the economy continues to surprise to the upside? (And wouldn't you know it? My taking a stake in I.G.-level corporates in WCPNX has been initiated just as the fund has dropped, mostly, over the past several days. (Merde.)
For the day, CBYYX +0.7%, SHRIX +0.66%, EMPIX +0.63% - 0.77%. That is a big divergence between CBYYX and EMPIX. With today's divergence, EMPIX fell behind CBYYX by 0.8% in Milton effect. I hope CBYYX is not going to give back today's gain on Monday.
For the day, CBYYX +0.7%, SHRIX +0.66%, EMPIX - 0.77%. That is a big divergence between CBYYX and EMPIX. With today's divergence, EMPIX fell behind CBYYX by 0.8% in Milton effect. I hope CBYYX is not going to give back today's gain on Monday.
Attention to detail. EMPIX down 8 cents -0.77%. You did not take into account that EMPIX paid its monthly dividend today. The second to last Friday of the month. So if the dividend was close to last month September 11 cents+ or July 12 cents+ it was up today. But if like August 4 cents +, then down for today.
Edit - Looks like after the dividend EMPIX was up 6 cents. So the dividend must have been around 14 cents.
Thanks for catching my error. I crossed off the erroneous info in my last post so others are not mislead. My bad for not remembering that EMPIX has switched to monthly dividends. Obviously, I do not own it and would like to own it if I had access to it.
CBYYX pays annual distribution. SHRIX pays quarterly distribution. and EMPIX pays monthly.
Not that I am looking for an excuse for my lapse in my Friday reporting of EMPIX' one day performance, Artemis (incorrectly) reported today -
"[T]he Ambassador cat bond fund was marked more heavily on Friday 18th October, by -0.77% which now leaves it at -0.87% since before hurricane Milton first threatened."
I guess do not take everything you read at Artemis as a fact.
the writers at artemis, imo, are anything but succinct and straightforward. a kind of gobbledygook appears to be their mainstay. that said, it seems to be the major source for cat-bond coverage, so the head scratching will have to continue. i took a minor position in CBYYX last wednesday, just to keep my toe in the swirling waters, come what may. ...
bb: time will tell whether the move is good or premature, but i hope you are right. meanwhile, i wish morningstar could get its one-day return numbers right.
Comments
Let’s look at a daily accrual bond fund whose net asset value is unchanged an entire month. You made money because the daily accrued dividends are paid out end of month with no impact on month end nav. On a monthly pay bond fund if the nav is unchanged the entire month you didn’t make anything. Its dividend is paid end of month and the nav is adjusted downward by the amount of the dividend. An extreme example to illustrate my point since it is rare for a monthly pay to be unchanged an entire month.
Edit to the above for better clarity. Let’s say it is a volatile month with bullish and bearish conditions impacting a daily accrual bond fund. The price is all over the place but ends unchanged. You made money - the dividends. On a monthly pay bond fund that is all over the place and the dividends are bled into the nav during the month but it still is unchanged end of month you break even. In no way am I implying a daily accrual fund outperforms a monthly pay. My quirk is I just enjoy making money each and every day of the month, especially 3 day weekend holidays with the daily accruals.
Edit. The above example not applicable to the CrossingBridge funds as they are priced in micro cents daily and you could never see an unchanged NAV day after day. Not sure I have seen bond funds priced in such manner.
The secondary difference perhaps is if you sold (before ex-date) a fund whose NAV is pregnant with accrued dividend, you are treating the accrued dividend as capital in nature whereas if you sold the same fund on ex-div date then the accrued dividend will be paid to you (with an equivalent drop in NAV) and is ordinary income in nature (barring limited exceptions). The reverse also applies when you are buying into the fund. If you buy a fund whose NAV is pregnant with dividend, then you are paying to get some of it back as a dividend (ordinary income). These differences are magnified if the dividend is paid quarterly or annually, rather than monthly. You will also notice the difference if your holding in the fund is in seven figures or more. This time of transaction distinction does not apply to funds that accrue div to your account and not to the NAV. This tax chatter may be useful only if you hold the fund in a taxable account. However, it may not be wise to delay your sale for tax reasons.
The third and minor difference is if you are transferring a fund from one brokerage to the other, more likely the fund that accrues div to the NAV transfers cleanly. But this is not a good reason to choose which fund one should invest in.
The above is not an exhaustive listing or discussion.
@Mona, please see this post as well.
In the latter case, there will be some language in the prospectus alerting that the fund NAV will be reduced on ex-dividend date, and possibly to avoid buying the (taxable) dividend just ahead of the ex-div date. If such language is missing, then the fund likely accrues daily but pays monthly - and the NAV doesn't change due to dividend payout on ex-dividend date.
Another way to figure this out is looking at the actual-prices for _TICKER in Stockcharts and see if there are dips on ex-distribution dates.
Most bond mutual funds accrue daily and payout monthly. An example is PIMIX where no dips are seem on ex-div dates (but only market fluctuations),
https://stockcharts.com/sc3/ui/?s=PIMIX&id=p65542786213&compare=_PIMIX&perf=false
It isn't easy to find bond funds that flow dividends through the NAV (most hybrid & equity funds do so). But CBLDX is mentioned, so let's check it out - one can see unmistakable dips in NAV on ex-div dates.
https://stockcharts.com/sc3/ui/?s=CBLDX&id=p04828864147&compare=_CBLDX&perf=false
Another example is USFR (most/all? eTF dividends flow-through the NAV),
https://stockcharts.com/sc3/ui/?s=USFR&id=p67039130505&compare=_USFR&perf=false
You are too kind @junkster.
The illusion of smoother NAV applies even here. On a day to day basis, I like to know the movement in NAV due to market conditions vs from accrual of YTM. That is not readily apparent in all the funds that accrue earnings through the NAV, whether they are priced through micro cents or not.
I am guessing more and more funds go this route because it is administratively simpler (cheaper) for the fund and most investors do not care whether the earnings are accrued to the investor's account or to the NAV. But the discerning large investor may decide to delay a purchase if the earnings are accrued to the NAV.
In the NRDCX thread. I asked whether NRDCX accrues div to the investor's account or to the NAV and I only received the answer without anyone asking why I cared. I assumed everyone in this forum knew the reasons.
P.S.: I overspent my daily quota of internet time.
Fidelity Treasury Only MM (FDLXX) at 4.51% - come on Fidelity.
Here is the Yahoo print of the Bloomberg story mentioned by @BaluBalu above.
-0.77%. That is a big divergence between CBYYX and EMPIX. With today's divergence, EMPIX fell behind CBYYX by 0.8% in Milton effect. I hope CBYYX is not going to give back today's gain on Monday.Edit - Looks like after the dividend EMPIX was up 6 cents. So the dividend must have been around 14 cents.
Yes, the dividend was 14.4 cents.
Thanks for catching my error. I crossed off the erroneous info in my last post so others are not mislead. My bad for not remembering that EMPIX has switched to monthly dividends. Obviously, I do not own it and would like to own it if I had access to it.
CBYYX pays annual distribution. SHRIX pays quarterly distribution. and EMPIX pays monthly.
https://seekingalpha.com/article/4727547-breakeven-federal-reserve-cuts-for-short-term-and-variable-rate-etfs
if you want to feel giddy - https://www.artemis.bm/news/cat-bond-market-index-bounces-back-now-only-0-30-since-hurricane-milton/
if you want to feel circumspect - https://www.artemis.bm/news/post-event-cat-bond-pricing-quite-different-with-milton-compared-to-ian-icosa/
My own take is that interval funds probably provide a more realistic perspective of NAV movements to these investors.
"[T]he Ambassador cat bond fund was marked more heavily on Friday 18th October, by -0.77% which now leaves it at -0.87% since before hurricane Milton first threatened."
I guess do not take everything you read at Artemis as a fact.
https://www.artemis.bm/news/mutual-cat-bond-and-ils-funds-mostly-reduce-post-milton-decline-at-fridays-pricing/
You all are my aggregators and you told me only about Artemis and so that is the only source I have. I think for our purposes, it is good enough.