A Review of the Income Area of My Portfolio

Old_Skeet

Hello:

This week was the rotation week for me to review the Income Area of my portfolio. This area is divided into two sleeves a fixed income sleeve and a hybrid income sleeve with both sleeves holding six funds each.

The fixed income sleeve year-to-date has had a total return of 1.85% less its distribution yield of 2.4% resulting in a loss. In short words it paid out more that it earned and gain in value resulting in a decline in its capital value by -0.55%.

The hybrid income sleeve (y-t-d) had a total return of 5.7% less its distribution yield of 2.75% resulting in an increase in its capital value by 2.95%.

The Income Area of the portfolio (two sleeves combined) had positive results (y-t-d) with a total return of 4.5% less the area’s distribution yield of 2.65% which resulted in an overall increase in value for the area by 1.85%.

If these results continue for the full year then the income area will grow by about 3.2% and in addition provide a distribution yield of about 4.5% for a combined estimated total return of 7.7%.

After thinking on this, I thought I’d post this review because of the recent press coverage fixed income has been receiving. As it turns out, I am fairing better than I anticipated.

I wish all … “Good Investing.”

Skeeter

Ted

Dear Skeeter: Fixed-Income Returns: http://www.allaboutfunds.com/performance/fixed_iops.pdf

Old_Skeet

Hi Ted,

Thanks for the link. With this, my income area has a total of twelve funds that pretty much covers the many areas found in the universe of income investing.

The fixed income sleeve holds LALDX, THIFX, ITAAX, LBNDX, NEFZX and NWQAX.

The hybrid income sleeve holds CAPAX, FKINX, ISFAX, PASAX, PGBAX abd AZNAX.

Since most of my funds are category leaders themselves my returns should fall above their mean from my thinking. I am an investor that likes to hold more funds than just a few. In this way if one of them falters then there are the other funds within their respective sleeve to provide support and thus maintain production. How many funds one chooses to hold is left best up to the individual. And, if it works for them ... Then that is what should count.

Thanks again Ted ... Hope you have a great weekend ... My best, Skeeter

Ted

Reply to @Skeeter: Glad to be of help ! Nice to have someone like you on the MFO Board. Unfortunately, we have a few losers who clutter the board with bad information, poor asset allocation, too many funds, and silly off-topic messages.
Regards,
Ted

DlphcOracl

I am going to take the contrarian (and maybe it is NOT contrarian) view of all this and state that the bond and fixed income slaughter than began in mid-May was, for me, a warning shot across the bow. I held a basket of top-notch unconstrained and multi sector bond funds and a few highly regard bond CEFs (e.g., PDI, PMF) and when the bond MFs lost 3% of their NAV in 1-2 weeks I sold all of them and went into cash. The paltry dividend income these funds pay is simply not worth the striking loss in NAV that will occur when more people become convinced that bond rates have bottomed earlier this year and are beginning a slow steady rise that will occur over decades.

The logic of guessing how low the bond rates will remain flat at historically low, multi-decade levels for the sake of 4-5% dividend yield totally escapes me. If someone really needs to generate income I believe they are far better served buying individual bonds, laddering them, and holding them to maturity. Slicing and dicing which bond MFs to hold and switch out of and into seems to be a case of seeing the tree and overlooking the forest.

Old_Skeet

Hi DlphcOracl,

Thanks for stopping by and making a comment. I started not to start a thread this weekend becasue I felt it would draw comments that would merit a response and I am in flux with my time. So, I might not get to respond to all that might make a comment.

In this case each fund I hold is because of some various strategies that they employ, some of them being unique. While I don't disagree with what you are saying many short term bond funds will follow a similar strategy that you have described. One of them is THIFX, Thourngburg Limited Term Bond Fund. I have linked information on this fund that some might find its reading of interest as it follows a laddered strategy that usually holds until maturity. http://www.thornburginvestments.com/funds/income/income_hlt.asp

I use to hold individual bonds themselves but I got tired of many of them being called and with this I was left with the task of finding a replacement. Now, I let the fund managers deal with it.

I'd write more but the server has q'ed me that my composition time is up.

Thanks again for your comments.

Skeeter

PRESSmUP

Skeeter...I may have missed how you define FI vs hybrid income. At first glance, I would have assumed NEFZX would fall into the hybrid category given their almost 20% allocation to equities. Not that I disagree at all with that holding.

Your post is very timely though, as the past few months have been illustrative. We had all better pay attention as to how our FI holdings have been behaving. This has been a warning shot. That is of course, if you believe FI has a place in a portfolio to serve as ballast. Which I do.

Within my own holdings....it's been good to see how several have held up...OSTIX, BERIX, SUBFX, PONDX.

And then there's PAUDX.

Investor

Reply to @DlphcOracl: I agree on the warning shot so I sold PONDX and MWHYX and increased some equity exposure a couple percent and put the rest on RPHYX. Yes it is also a bond fund but has very low duration risk.

Old_Skeet

Hi PRESSmUp,

NEFZX use to be held in the hybrid sleeve but when I reconfigured the sleeve I moved it from hybrid to the fixed sleeve a while back. I still refer to the sleeve as fixed income becasue the sleeve still bubbles better than 80% fixed and cash. Anyway, that is where I am coming from. Don't think NWQAX is a stand alone fixed bond fund either but still with its holding within the sleeve, the sleeve as a whole still meets the 80% test.

If one wants, they can use Morningstar's Instant Xray tool and enter the fund tickers with an equal weighting and see in more detail how the sleeve is put together. I am not of equal weight in each fund by any means but as an excerise this might be found informative. The sleeve can be reconfigured form time-to-time by changing out funds or the size of their position to achieve the sleeve's desired allocation target.

Got that Time Up Server Notice again.

Skeeter