Need help with Scout Unconstrained Fund (SUBYX) June distribution (or lack thereof!)

mnzdedwards

To all MFOs,

I have been a shareholder of the Scout Unconstrained Bond fund (SUBYX) for nearly six months now. The fund's distributions in the past have been small ~ 1.25% annual yield. And that's ok. But when I looked at the June distribution of $.0024 per share (share price $11.71) I became concerned. Doing the quick math, this comes to 0.25% annual yield. Oh my! What am I holding?

Now, I didn't purchase SUBYX for it's regular monthly dividends. But at the same time I'm wondering how they can be so low all of a sudden (see distribution table at bottom of link below). Does it mainly have to do with the fund's negative duration and shorting of treasury futures?

http://quotes.morningstar.com/fund/subyx/f?t=subyx

On another note. can a fund that distributes a 0.25% annual yield be termed a "bond" fund? Or is it a equity-type fund disguised as a bond fund?

Any thoughts are greatly appreciated.

Mike_E

Sven

I would contact Scout shareholder service directly. They should able to provide the current SEC yield. The negative duration is derived from derivatives aiming to protect the portfolio's duration risk in case of rising interest rate.

msf

The latest data Scount is providing appears to be March 31st - see their fact sheet and holdings.

This is where the reported -2.7 year duration comes from. M* does not analyze the portfolios for duration, but relies upon the fund-provided figure. This can create problems, as noted in this M* article (and associated posts), where it was pointed out that MXGBX and TGBAX, very similar funds from the same management company reported significantly different durations. It turned out that one of the funds was reporting an incorrect number.

If one looks at the holdings sheet, aside from hedging Yen, one sees only two futures contracts - the fund is way short on Treasuries (futures, actually), to the tune of almost half the longs in the portfolio. That could easily put the duration into negative territory. Though, those futures expired last month, and we don't know if the fund rolled them over into new futures (short).

As to yield, little would surprise me with a fund having a 200%+ turnover, and focused on short term bonds. We can't know what's in the portfolio (at this turnover rate, over half the holdings in the last report may likely have changed). The average maturity reported was 2.2 years. If we look at a Treasury fund (clearly not an equity-like fund) with a similar average maturity, say Vanguard Short-Term Treasury Investor class (VFISX), we see that its trailing twelve month yield is 0.30%, it's clear that a pure bond fund can have yields this low or lower.

mnzdedwards

Thank you msf for your insightful comments. It never occurred to me to compare a similarly dated Treasury bond yield to the fund's!!!! Duh!

Much appreciated,
Mike_E

mnzdedwards

Update on SUBFX 30-day SEC Yield:

Per Morningstar: 30-day SEC Yield = 0.08%

Now that is for the Institutional version of the fund. Morningstar hasn't updated the retail (SUBYX) shares yet.

Wow, that is low. Maybe the fund has more cash than we know? Or is buying very short-dated maturities? We will find out later this month.

Mike_E

David_Snowball

I wrote Scout to ask. My contact is out of the office today, but I'll pass along anything I hear back.

David