We all know that the one thing we can control is cost. With that in mind I checked out my cast of great managers to get a relative sense of what I am spending. I was shocked to see that I am paying 26% more for management of RPHYX than to the great D. Fuss over at LSBRX. Or 40% more than I am paying the illustrious Gundlach/Barach team over at DLTNX. In an era of diminishing FI returns isn't this relatively high ER a giant hurdle for RPHYX to overcome? Or put another way,,,,,, won't they have to add another layer of risk to get the same net return?
Comments
I'd gladly pay the extra 25-40 basis points if I can sleep well at night.
(Disclosure: I'm a shareholder in the fund as well).
Worth mentioning about the turnover - more turnover (because the fund focuses on bonds that are about to mature/be called) means more research has to be done, meaning higher management costs.
Trading costs are not included in ERs. Normally, higher turnover result in higher trading costs. But here, since many of the bonds are redeemed (not sold), the costs may not be as bad as one might expect. That is, rather than paying commissions for a round trip, the fund may only have to pay for a one way "ride".
"In the bond market, bond prices include commission, which is computed as a percentage of the bond's price. The difference between what you pay and what the dealer pays is the markup. ..."
Scottrade: Investing In Bonds.
Old Joe's right: both chip and I have investments in the fund and have added to them regularly. They're part of my and her "cash management" portfolios.
As I've talked with David S. about managing the fund, it seems to me to be a high maintenance / high cost strategy. His estimate, if I recall correctly, is that he has to place $4 in purchases for every $1 in the portfolio because these positions are redeemed so quickly. He's investing in orphaned securities which don't have a lot of deal-makers for them, so there's a fair amount of legwork involved.
He seems comfortable that, after expenses, he can outperform a money market by 250 - 350 bps. And he seems adamant that he will not knowingly expose his investors to an appreciable risk of losing capital; he'd rather go to cash than participate in trades where he's reaching beyond the comfort zone. In the 32 months since launch, he's turned a $10k portfolio into an $11,000 portfolio with negligible volatility. Over that same period, Vanguard's Prime Money Market turned $10k into $10,010 and their short-term bond index fund turned $10k into $10,500.
For what interest it holds,
David
Ralph