Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
@NormPeterson. I found the sub-adviser for IOFIX, the folks at Garrison Point, to be of high character. I was never crazy about the AlphaCentric adviser, but the GP folks said they were left alone. I suspect that's true except for letting AUM grow. But only speculation on my part. Have not been in touch since it's (relative) collapse. Still hurts.
@FD100. Wouldn't CEFs be a more transparent and ultimately safer play in this space? While they may (and have) experienced deep NAV drops and deeper discounts, the fund managers don't need to sell the holdings at fire sale prices. So, leaving assets in tact for a rebound during better times.
@Charles - no doubt small comfort but IOFIX is up 10% over the last month.
With respect to the SEC filing against Semper this is an old issue about pricing of odd-lot MBS securities in 2013-2014.
The SEC states that 126 odd lots were priced according to round lot prices, leading to an overstatement of approx 3.5% of their value, and thus an elevated NAV during that period.
SEC alleges willful violation and other funds were cited as well (Pimco etc.)
It is not related to the most recent fund collapse.
a few months back, many on these discussions boards were touting DHEAX, Diamond Hill short duration...just looking at their returns and SD etc all looked good but if you took the time to look at their holdings you would have seen they were investing in bonds like a holding in Kabbage...an online funding for small businesses with "quick decisions"...what could possibly go wrong there? Now they stopped loaning monies just when the small business need them the most and are "helping" small business' get bail outs from the gubmint...Whiskey Tango Foxtrot!
Reminds me when a year ago or so when I was working in a large bldg in downtown CHI town, I told a few of the fellas in the gym at lunch, ya know, if half of the companies in this bldg went belly up, I don't know that society would miss them...they make no money, are just funded on an idea and cheap monies...very concerning.
I will also state...look for experience in your fund managers...just like when getting on an airplane or a physician...not to bad to see a little grey hair...folks who have been to a few rodeos...not a bad idea to invest in funds that are run by experienced folks but also have some younger turks learning the ropes and injecting fresh thinking and ideas....
Baseball fan, all the things you said to watch for didn't work. Corp bonds rated invested grade were down 13% from the top. Black swan is unknown and if you invest based on that you will only own treasuries which are fine for some but not all investors.
Charles, the idea of CEFs is good but most were down significantly, even Pimco top ones PCI, PDI lost 30-40%. I basically sell any bond fund I own that lose 1%.
Lastly, to investors who say lesson learned, I don't. I don't look at the last crash and invest based on it in the next several years. I just wait months until I feel markets come down to take more risk in bonds.
It's so tempting to buy now IOFIX,VCFAX and especially EIXIX which I think is "safer" but I don't dare. These broken MBS might have a problem
[and later ...]
Corp bonds rated invested grade were down 13% from the top. Black swan is unknown ... Pimco top ones PCI, PDI lost 30-40%.
The funds you look at do seem broken. As corporates and MBSs recovered, these funds continued going down. Which is why, as Baseball_Fan wrote, it's important to know what you own, not just what their "stats" are.
Every once in awhile, a picture really is worth a thousand words. Here's a graph showing YTD curves for MBB (iShares MBS), PTRIX (Pimco MBS fund), VTC (Vanguard Total Corporate ETF), VCFAX, and SEMRX.
All dipped to varying degrees, but the first three recovered and are positive on the year. VCFAX flattened and is down 13%; SEMRX continued to plunge and is down 22%.
SEMMX is negative over 1, 3, and 5 years. (It has not been around for a decade yet.) Next to that, DODIX looks pretty good. A problem with putting too much faith in volatility figures over a generally quiescent period is that one is blinded to latent risks.
These "black swan" events come almost like clockwork. 2020, 2009, 2000, 1987, 1974. Pandemic risk is unknown? That sounds like a politician.
The "willful" part wasn't exactly necessary. As the SEC pointed out, negligence would have been sufficient. It even referenced Steadman in this regard. There, the SEC said that "if we were to conclude that the [defendants] meant to defraud investors, we would have to believe that they did it for the sheer joy of it rather than for profit."
There were multiple problems with what both PIMCO and Semper did. Notably that they inflated performance figures and that they did not disclose this.
Lots of funds seem to do unusually well right out of the gate due to small size. If they can purchase small (odd) lots at a discount and actually resell them at full value, they can boost returns. PIMCO might have been able to do this for a short time, buying up small lots until it had enough to sell round lots. That would have made its performance figures legitimate but still misleading. That's why the lack of disclosure mattered.
@TheShadow. Thank you, really helpful. Good insight into pricing mechanism. Yay, hope this is not widespread. Think bond pricing is going to get a lot of scrutiny coming out of this mess. c
@msf. "A problem with putting too much faith in volatility figures over a generally quiescent period is that one is blinded to latent risks." Hear, hear. And yes, DODIX recovered. Think the Fed helped all IG bonds recover pretty quickly. But right before it stepped-in, I think even DODIX was down 10% in March. Yes too ... going back even further ... WWI, 1918 Flu, GD, WWII, Sputnik, Korea, Cold War (Duck & Cover), Missile Crisis, Vietnam, Watergate, gas crisis, Iran, Berlin Wall, AIDS, LTCM, tech bubble, 9/11, Iraq, housing bubble ... CV-19. You'd think with all that we would never forget that sometimes it really does feel like the world is ending. That certainly is how it felt in March. And when that happens and everybody really is running for the door, all investments look scary. I think at some level, however slight, when you are investing there is a real possibility that all could be lost. I estimate rock steady DODIX had $3B in redemptions in March, or about 5%. But if the Fed had not stepped in, how many folks would have continued to redeem? It holds about 8% junk and 25% in BBB. SEMPX's redemptions were much higher at 25%. Behemoth PIMIX lost $13B or about 10% of its AUM. Yes indeed, the 11 year bull made a lot of folks complacent, me included. Especially with its unprecedented stretches of NO volatility. Anyway, I'm rambling now. Time for another cup of coffee. Thanks again.
As you commented, this is an old issue. While these incidents raise questions of competency (compliance) and of ethics, I believe they're generally small and limited to new funds.
The main impact I can see is to investors who were suckered in by inflated performance figures (without disclosure). As I tried to explain above, ISTM that performance could be legit if a fund were able to aggregate odd lot purchases into larger round lots - thus arbitraging two markets. Otherwise, not.
It's an example of why one must be wary of early performance figures of funds. They may be buying a lot of private placements, buying odd lots at discounts, etc. Practices that don't scale.
What I always use as the poster child for bond fund mispricing and genuinely willful defrauding (including insider trading) is Heartland. The actions there were so egregious that I will never invest in that family. https://www.sec.gov/news/press/2003-171.htm
When projects underlying some bonds held by the funds went into default and other projects were failing, Heartland didn’t accurately re-price the funds to reflect the lower valuations, the SEC said. The net asset value of the high-yield [muni] fund plummeted 69.4% in one day, and the short-duration [muni] fund fell 44%.
@Charles - I heard that also. @msf - apologies for my bad typing. You asked if I knew of others and I meant to answer "no I don't". Wouldn't surprise me if there were others though.
It's so tempting to buy now IOFIX,VCFAX and especially EIXIX which I think is "safer" but I don't dare. These broken MBS might have a problem
[and later ...]
Corp bonds rated invested grade were down 13% from the top. Black swan is unknown ... Pimco top ones PCI, PDI lost 30-40%.
The funds you look at do seem broken. As corporates and MBSs recovered, these funds continued going down. Which is why, as Baseball_Fan wrote, it's important to know what you own, not just what their "stats" are.
Every once in awhile, a picture really is worth a thousand words. Here's a graph showing YTD curves for MBB (iShares MBS), PTRIX (Pimco MBS fund), VTC (Vanguard Total Corporate ETF), VCFAX, and SEMRX.
All dipped to varying degrees, but the first three recovered and are positive on the year. VCFAX flattened and is down 13%; SEMRX continued to plunge and is down 22%.
SEMMX is negative over 1, 3, and 5 years. (It has not been around for a decade yet.) Next to that, DODIX looks pretty good. A problem with putting too much faith in volatility figures over a generally quiescent period is that one is blinded to latent risks.
These "black swan" events come almost like clockwork. 2020, 2009, 2000, 1987, 1974. Pandemic risk is unknown? That sounds like a politician.
politician? not really. As retiree that wants to make more without the volatility the numbers show it. If you don't understand how and what you do like most then just invest like most. Buy and Hold stocks and high rated bonds for ballast. You can see in 20 years black swan happened every 10 years.
You can also see (this) and what I did, using trades.
BTW, Today at 10 AM I sold all my stocks(all in QQQ) that I bought earlier in April and posted at M*. I'm not predicting it's the top, I sold sold because I made money the way I do by trading.
But, you are not the first or last that tried to dismiss it and it looks to me that every post I make you think it's your obligation to criticize.
Comments
@NormPeterson. I found the sub-adviser for IOFIX, the folks at Garrison Point, to be of high character. I was never crazy about the AlphaCentric adviser, but the GP folks said they were left alone. I suspect that's true except for letting AUM grow. But only speculation on my part. Have not been in touch since it's (relative) collapse. Still hurts.
@FD100. Wouldn't CEFs be a more transparent and ultimately safer play in this space? While they may (and have) experienced deep NAV drops and deeper discounts, the fund managers don't need to sell the holdings at fire sale prices. So, leaving assets in tact for a rebound during better times.
https://www.sec.gov/litigation/admin/2020/ia-5489.pdf
With respect to the SEC filing against Semper this is an old issue about pricing of odd-lot MBS securities in 2013-2014.
The SEC states that 126 odd lots were priced according to round lot prices, leading to an overstatement of approx 3.5% of their value, and thus an elevated NAV during that period.
SEC alleges willful violation and other funds were cited as well (Pimco etc.)
It is not related to the most recent fund collapse.
a few months back, many on these discussions boards were touting DHEAX, Diamond Hill short duration...just looking at their returns and SD etc all looked good but if you took the time to look at their holdings you would have seen they were investing in bonds like a holding in Kabbage...an online funding for small businesses with "quick decisions"...what could possibly go wrong there? Now they stopped loaning monies just when the small business need them the most and are "helping" small business' get bail outs from the gubmint...Whiskey Tango Foxtrot!
Reminds me when a year ago or so when I was working in a large bldg in downtown CHI town, I told a few of the fellas in the gym at lunch, ya know, if half of the companies in this bldg went belly up, I don't know that society would miss them...they make no money, are just funded on an idea and cheap monies...very concerning.
I will also state...look for experience in your fund managers...just like when getting on an airplane or a physician...not to bad to see a little grey hair...folks who have been to a few rodeos...not a bad idea to invest in funds that are run by experienced folks but also have some younger turks learning the ropes and injecting fresh thinking and ideas....
Baseball Fan
https://www.sec.gov/enforce/ia-5489-s
Charles, the idea of CEFs is good but most were down significantly, even Pimco top ones PCI, PDI lost 30-40%.
I basically sell any bond fund I own that lose 1%.
Lastly, to investors who say lesson learned, I don't. I don't look at the last crash and invest based on it in the next several years. I just wait months until I feel markets come down to take more risk in bonds.
Every once in awhile, a picture really is worth a thousand words. Here's a graph showing YTD curves for MBB (iShares MBS), PTRIX (Pimco MBS fund), VTC (Vanguard Total Corporate ETF), VCFAX, and SEMRX.
All dipped to varying degrees, but the first three recovered and are positive on the year.
VCFAX flattened and is down 13%; SEMRX continued to plunge and is down 22%.
SEMMX is negative over 1, 3, and 5 years. (It has not been around for a decade yet.) Next to that, DODIX looks pretty good. A problem with putting too much faith in volatility figures over a generally quiescent period is that one is blinded to latent risks.
These "black swan" events come almost like clockwork. 2020, 2009, 2000, 1987, 1974. Pandemic risk is unknown? That sounds like a politician.
"Over the past quarter century, warnings have been clear and consistent from both US government leaders, scientists, and global health officials: A pandemic was coming—and whenever it arrived, it would be catastrophic to the global economy."
https://www.wired.com/story/an-oral-history-of-the-pandemic-warnings-trump-ignored/
https://www.sec.gov/news/pressrelease/2016-252.html
The "willful" part wasn't exactly necessary. As the SEC pointed out, negligence would have been sufficient. It even referenced Steadman in this regard. There, the SEC said that "if we were to conclude that the [defendants] meant to defraud investors, we would have to believe that they did it for the sheer joy of it rather than for profit."
There were multiple problems with what both PIMCO and Semper did. Notably that they inflated performance figures and that they did not disclose this.
Lots of funds seem to do unusually well right out of the gate due to small size. If they can purchase small (odd) lots at a discount and actually resell them at full value, they can boost returns. PIMCO might have been able to do this for a short time, buying up small lots until it had enough to sell round lots. That would have made its performance figures legitimate but still misleading. That's why the lack of disclosure mattered.
As you commented, this is an old issue. While these incidents raise questions of competency (compliance) and of ethics, I believe they're generally small and limited to new funds.
The main impact I can see is to investors who were suckered in by inflated performance figures (without disclosure). As I tried to explain above, ISTM that performance could be legit if a fund were able to aggregate odd lot purchases into larger round lots - thus arbitraging two markets. Otherwise, not.
It's an example of why one must be wary of early performance figures of funds. They may be buying a lot of private placements, buying odd lots at discounts, etc. Practices that don't scale.
What I always use as the poster child for bond fund mispricing and genuinely willful defrauding (including insider trading) is Heartland. The actions there were so egregious that I will never invest in that family.
https://www.sec.gov/news/press/2003-171.htm https://www.investmentnews.com/heartland-fined-3-9m-for-mispricing-funds-13500
@msf - apologies for my bad typing. You asked if I knew of others and I meant to answer "no I don't". Wouldn't surprise me if there were others though.
You can see in 20 years black swan happened every 10 years.
My thread was a proof of what I did, see (this)
You can also see (this) and what I did, using trades.
BTW, Today at 10 AM I sold all my stocks(all in QQQ) that I bought earlier in April and posted at M*. I'm not predicting it's the top, I sold sold because I made money the way I do by trading.
But, you are not the first or last that tried to dismiss it