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MetWest Flexible Income Fund - MWFEX, MWFSX

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Comments

  • I haven't examined the fund too closely, but if you are looking for the reason for the returns and the potential liquidity risks, I would suggest considering the commercial mortgage backed securities CMBS exposure. They came under a lot of pressure recently, but I imagine if a manger timed the purchases right he/she could also make some attractive gains very quickly with them too. Not for the faint of heart most likely.
  • Thanks for the suggestion. Certainly the CMBS portion of the portfolio is one of the most likely candidates.

    Almost all the CMBS holdings are derivatives and I really didn't want to get into estimating their yields. So I started with the assumption that within CMBSs, yields would tend to be similar. Thus I looked at the more basic securities.

    My source of prices was the annual report that valued the securities as of March 31, ISTM any bargain basement purchases in March were already priced in. For example, there's a non-agency CMBS, BBCMS Mort. Trust, Series 2020-C6, Class F5TB 3.69%. (In the BBCMS Mort. Trust prospectus, it's Class F5T-B.) With principal of $75K, its current value (March 31) is given as $46,675.

    Fund Annual Report
    BBCMS Mort. Trust Prospectus

    This security represents a mortgage on a single property, F5 Tower in Seattle (built 2019, 100% occupied), with an anticipated repayment date of January 6, 2030 (final maturity in 2033).
    image

    The prospectus gives the average weighted life as 9.91 years (about 119 months). The security was issued in mid February. That's close enough to the March 31 date of the fund's annual statement not to worry about the difference in dates.

    The annual statement gives the principal amount as $75K and the current value as $46,675. With this information (and the info in the SEC filing) I could approximate the yield going forward.

    To figure out the monthly payments received (principal and interest) I used an amortization calculator, and 119 months. (Outstanding principal doesn't change enough in the month from Feb to the March annual report date to worry about adjusting this.)

    $75K principal, 3.69% average weighted rate (per SEC filing) gives monthly payments of about $754.

    Since the fund valued the holding at $46,675, the question becomes: what would the rate be on a $46,675 mortgage (119 months) to require payments of $754? The answer is about 15%.

    That's in line with the fund's yield. Good, but not enough to compensate for the lower yielding securities held by the fund, let alone its large cash position. The bottom line is that I still agree that the CMBS derivatives are a good place to search for the higher yielding securities.


  • edited July 2020
    For me, this is not the type of bond fund that counts as bonds in a typical "60/40" portfolio. To make room for this fund, I sold some equity. That was in part to many bond managers saying equities were overpriced, but some bond segments still looked attractive. Volatility has not been big YET and it held up very well in March, but still, this is obviously an aggressive fund that goes into an aggressive part of a portfolio, long term money.

    I prefer some exposure in segments of illiquid positions to exploit the inefficiencies. That's largely due to many years of following Howard Marks. I was in the DoubleLine LP for many years. That only had quarterly redemptions, which could be denied. I like closed end funds and interval funds. Most of my portfolio is in liquid stocks and bonds, but I do allocate a section for illiquid things just because that's the only place left to fund value sometimes.

    FPA's closed end fund, SOR, recently changed their fund to allow it to invest in more illiquid fixed income in private credit. Just because it's illiquid doesn't necessarily mean its junk. It might be small or of an alternative structure that prevents others from wading in.

    With MWFSX, for now the managers are by far the largest owners. Redemptions would not affect liquidity, especially with their 23% cash position. As AUM grows, that could be a concern, but they would most likely move to more liquid positions over time.
  • Sounds like a good bet if you're young enough to hold it through the inevitable future downdrafts.
  • Looking at MWFSX I can see that the daily distribution is going down. That is not a good thing and why the return will go down because it was a major part of its total return.

    As of Date Dividend Rate
    7/14/2020 0.000696355
    7/13/2020 0.001070898
    7/12/2020 0.00292486
    7/11/2020 0.00292486
    7/10/2020 0.00292486
    7/9/2020 0.002941311
    7/8/2020 0.003001093
    7/7/2020 0.003107266
    7/6/2020 0.003372154
    7/5/2020 0.003362877
    7/4/2020 0.003362877
    7/3/2020 0.003362877
    7/2/2020 0.003362877
    7/1/2020 0.003403448
    6/30/2020 0.004653331
    6/29/2020 0.004131378
    6/28/2020 0.005873692
    6/27/2020 0.005873692
    6/26/2020 0.005873692
    6/25/2020 0.00452522
    6/24/2020 0.004407367
    6/23/2020 0.004650857
    6/22/2020 0.004539056
    6/21/2020 0.005814275
    6/20/2020 0.005814275
    6/19/2020 0.005814275
    6/18/2020 0.005364586
    6/17/2020 0.004498074
  • It was yielding over 20%. Of course it’s going to go down. Even if it went down by half it would yielding about 10%. As AUM increases, yield will fall. This is happening as expected. It’s also actively managed by Tad Rivelle. They may be trimming their risk. Cash looks to be building.
  • edited July 2020
    JayRock82 said:

    It was yielding over 20%. Of course it’s going to go down. Even if it went down by half it would yielding about 10%. As AUM increases, yield will fall. This is happening as expected. It’s also actively managed by Tad Rivelle. They may be trimming their risk. Cash looks to be building.

    In the last 4 days it looked like the following
    As of Date Ticker Dividend Rate
    7/23/2020 MWFSX 0.001582083
    7/22/2020 MWFSX 0.001426187
    7/21/2020 MWFSX 0.001684689
    7/20/2020 MWFSX 0.001714354

    If we use 0.0015 daily we get about 4.5% annually.

    It is one of the worse performer for one month and 3 months in my list

    Ticker..1 Mo...3 Months
    MIAYX 3.03 9.85
    AIHAX 2.62 2.95
    JIPAX 2.6 7.57
    ADVNX 2.56 4.91
    BMSAX 2.43 8.44
    JSTIX 2.41 6.35
    PDIIX 2.32 7.89
    PLSFX 2.28 9.09
    FCDDX 2.25 8.12
    STISX 2.23 8.2
    JMUTX 2.22 9.38
    ASIGX 2.17 6.79
    PUCZX 2.1 8.67
    FADMX 1.97 7.98
    MXIIX 1.73 5.63
    JMSIX 1.66 9.01
    HSNYX 1.64 10.57
    PTIAX 1.61 4.95
    IOFIX 1.54 16.42
    SEMMX 1.34 10.66
    PIMIX 1.3 6.31
    TSIIX 1.27 7.29
    EIXIX 1.09 8.01
    DHEAX 1.08 8.04
    VCFAX 0.88 7.78
    MWFSX 0.84 4.06
    RCTIX 0.43 4.45

  • I’m not too concerned about 3 month performance. If this continues for a year I’ll reevaluate. They are up to 36% cash. If all that cash was invested at 4.5%, the fund would yield a little over 6%. I like them keeping dry powder in these volatile times. 36% seems quite large, but I fully expect them to use it opportunistically. As always, time will tell.
  • 0.0015 * 365 = 5.475%
    It has accumulated $0.068212965 so far this month. with only 5 days left my guess is the distribution for this month about 7.6cents. Last month was 13cents.
    other funds showed price appreciation but not this one. But the question is how long how far can the price go up. If MWFSX can keep price and distribution stable it is not a bad choice. my concern is its distribution is in a a downward trend and quite dramatically. Need to keep a close look.
    AUM is 16.9M at their website. M* is 13.7M
  • The old M* shows 16.9 million (link)

    My whole point is to show a huge reduction is distributions and why MWFSX performance will be much lower in the future.

    If you look at M* for the Multi category(here) You can see the following
    One month...category=1.79...MWFSX =0.89
    One week.....category=0.75...MWFSX =0.11
  • “They said that as AUM increases, the yield will fall.”

    That’s what they told me would happen back in early June. AUM was around 11 million then. If AUM is up to 17, then I has increased by about 55%. Cash has increased to 36%. This was all to be expected. The question is how will they deploy all that cash. It looks like they are expecting a covid second wave, recession/depression, defaults, etc. They want dry powder. By hiring them as managers, I’m paying for this type of tactical allocation. We’ll see how it works.

    I don’t need this fund for monthly income. It’s an aggressive opportunistic allocation.
  • edited July 2020
    Hey @JayRock82,

    With the many ways to play the market and for it's ever changing market currents ... Well, that is what makets the market so great as there are many ways to find success (or failure) by investing in it. I sincerely wish you well with this spiff (special investment position). Please let us know how it works for you. Skeet
  • JayRock82 said:

    “They said that as AUM increases, the yield will fall.”

    That’s what they told me would happen back in early June. AUM was around 11 million then. If AUM is up to 17, then I has increased by about 55%. Cash has increased to 36%. This was all to be expected. The question is how will they deploy all that cash. It looks like they are expecting a covid second wave, recession/depression, defaults, etc. They want dry powder. By hiring them as managers, I’m paying for this type of tactical allocation. We’ll see how it works.

    I don’t need this fund for monthly income. It’s an aggressive opportunistic allocation.

    As of 6/30 they have 35.57% in cash. They will probably have an update in the week following this week. It's strange they have so much cash. 17 million is a very small portfolio and it should be very easy to find more bonds for extra 6-7 million.
    The next 1-2 weeks would tell us plenty. Is the daily distribution fall around 0.0015, 0.002 or more.
    If the expense ratio goes to 9.2% (the waiver of 8.38% ends at 7/31/2020) this fund will not be good.
  • No fund would be good at a 9.2% expense ratio. They’ll continue to waive it.
    I agree though, that high of cash is odd, but I think it’s just inflows from people like me. Tad has been bearish. I hope his bearishness doesn’t lead him to pass up too many opportunities. He’s got over 1 million in the fund, so I’m sure he hasn’t just forgot about it. Looking forward to seeing what moves they make.
  • If you look at a chart showing 10/04/2019 to 01/19/2020, you see that the fund was only up about 0.73% over that 3 1/2 month period. Some periods of subpar performance would not be new for this fund. Long term is all that matters.

    http://quotes.morningstar.com/chart/fund/chart?t=mwfsX&region=usa&culture=en-US
  • edited July 2020
    I don't have a bone in this since I don't own MWFSX.
    The monthly distributions are clearly going down, and they are a huge part of the total returns.

    Date Dividends
    July 31 will be around 0.72% to 0.75. Down from 2%-->1.8%-->1.6 and now to 0.75%
    Jun 30, 2020 0.135 Dividend
    May 29, 2020 0.153 Dividend
    Apr 30, 2020 0.162 Dividend
    Mar 31, 2020 0.184 Dividend
    Feb 28, 2020 0.205 Dividend

    Performance in the category is at 95% for one month and 86% for 3 months.
  • I definitely see what you’re saying. I’d be very interested to see what the yields were in October and November of 2019, but I can’t find that. Either way, I think we just analyze funds differently for our different expectations based on different portfolio goals. All good.
  • "I’d be very interested to see what the yields were in October and November of 2019, but I can’t find that."

    Click here to download (.csv file) all the daily dividends from date of inception:
    https://www.tcw.com/data/div/DailyDiv_MWFSX.csv

    That download link is from the MetWest/TCW page for the fund:
    https://www.tcw.com/en/Products/Funds/MetWest-Flexible-Income-Fund/MWFSX---M

  • edited August 2020
    Thanks, msf!
    After looking at this I feel better. This fund is still intact. To me, they are just being very conservative right now given the unprecedented environment, hence the huge cash allocation. If they were making a lot on cmbs pre covid but now have less confident in that sector, they must wait for better pricing, which they are.
  • Looks like MetWest officially extended the fee waiver until July 31, 2021
  • edited August 2020
    Cash is up to 53.7% as if 7/31. That’s kind of crazy.
    Assets have tripled since I started the thread, up to 31 million now.
  • MWFSX performance continues to lag and relates to lower daily distributions.
    Its performance for 1-4-12 weeks per M* Multi category is 85-97-88. Basically, it's in the bottom 15%-3%-12%.
    The last several distributions are:
    As of Date Ticker Dividend Rate Accumulated Dividend Rate
    8/9/2020 MWFSX 0.001256647 0.012160065
    8/8/2020 MWFSX 0.001256647 0.010903418
    8/7/2020 MWFSX 0.001256647 0.009646771
    8/6/2020 MWFSX 0.001189266 0.008390124
    8/5/2020 MWFSX 0.001149859 0.007200858
    8/4/2020 MWFSX 0.001163833 0.006050999
    8/3/2020 MWFSX 0.001201751 0.004887166

    Reminder: just several weeks ago in July the dist were 2-3 times higher.

    At 0.0012 per day it's about 4.4% annually. I'm taking it off my list.
  • actually this is giving me confidence in the fund. It's got more than half in cash, a heckuva bond mgr, and it's giving you 4.4%. This might be the "new" RPHYX
  • I agree, Bobby. Half in cash ready to deploy on opportunity with a current 4.4% yield AND low volatility, that’s appealing to me. Not for a huge section of my portfolio, but 5 to 10% for sure.
  • edited August 2020
    Bobby said:

    actually this is giving me confidence in the fund. It's got more than half in cash, a heckuva bond mgr, and it's giving you 4.4%. This might be the "new" RPHYX

    2 completely different funds.
    RPHYX made 2.1% average annually in the last 3 years. Why would I want to own this fund? The only reason maybe cash "sub" since many bond funds I own made a lot more. RPHYX is mostly short term duration HY bonds + cash & Equivalents.

    MWFSX is a Multi sector fund. Please find me more bond funds with over 50% in cash. It made only 0.42% in the last month. That is at the bottom 2% in its category. For 3 months it is at the bottom 12%.

    The only confidence I have is when I see performance but maybe they are right and why rates started to go up in the last several days:-)
  • They’re performance from inception, which wasn’t long ago, has been exceptional. I can’t see how I could make good investment decisions looking at such short term performance metrics that you site. But hey, if that’s working for you, good on ya, I won’t question your results.
  • FD1000 said:

    MWFSX performance continues to lag and relates to lower daily distributions.
    Its performance for 1-4-12 weeks per M* Multi category is 85-97-88. Basically, it's in the bottom 15%-3%-12%.
    The last several distributions are:
    As of Date Ticker Dividend Rate Accumulated Dividend Rate
    8/9/2020 MWFSX 0.001256647 0.012160065
    8/8/2020 MWFSX 0.001256647 0.010903418
    8/7/2020 MWFSX 0.001256647 0.009646771
    8/6/2020 MWFSX 0.001189266 0.008390124
    8/5/2020 MWFSX 0.001149859 0.007200858
    8/4/2020 MWFSX 0.001163833 0.006050999
    8/3/2020 MWFSX 0.001201751 0.004887166

    Reminder: just several weeks ago in July the dist were 2-3 times higher.

    At 0.0012 per day it's about 4.4% annually. I'm taking it off my list.

    We discussed this fund last August. Its performance lagged several funds I follow by a lot. All these bond funds are mostly in securitized,
    image
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