Dear friends,
As I prepared for the August issue of the Observer and a planned September profile update for RPHYX, I asked David Sherman, RiverPark's manager, to read the recent discussions here about his fund. He agreed and thought that quality of analysis was generally high and occasionally excellent.
Following from that conversation, he offered to participate in a conference call with interested MFO members in the reasonably near future. The call would likely to taped and posted.
If you'd like to hear from, and ask questions of, Mr. Sherman (and likely Mr. Schaja, RiverPark's president), please do let me know. If a reasonable number of folks would like to pursue the opportunity, I'll begin working with RiverPark to set up a good time.
As ever,
David
Comments
Linked below is the prospectus for the subject fund. Its reading is simple and straight forward. From its reading, they cover how you can purchase and redeem shares. I could not find where they address short term trading. So perhaps, there are no restrictions on trading in and out of the fund.
http://www.riverparkfunds.com/Prospectus/ShortTermHighYieldFund.aspx
I assuming, the fund operates under the Investment Act of 1940, and with this, you can sell shares of a mutual fund anytime you want to. However, it seems, restrictions and fees can apply if they are stated. You might wish to contact the fund company directly and find out form them the answer to your above question as it centers more on a back office type question.
Skeeter
Thanks for the link to the summary prospectus; the details on buying, selling, and exchanging shares are in the statutory prospectus, which contains the usual boilerplate about discouraging short term trading, but the only specific limitation I could find is a maximum of 5 exchanges between RP funds (not round trips via buys and sells) per year.
Do keep in mind that if you buy your fund NTF through a brokerage, they may impose a short-term trading fee. My brokerage charges a penalty if I buy and sell NTF funds within 6 months. So I only add money to RPHYX if I am certain that I won't need it for another 6 months.
I think the large cash position is a necessary part of this fund's strategy, but it is something that I would like to ask about if we have the opportunity.
"Fidelity will charge a short term trading fee each time you sell or exchange shares of FundsNetwork No Transaction Fee (NTF) funds held less than 60 days (short-term trade)."
Edit: Didn't see Andrei's post till after saving mine ...
In a sense, many bonds in this fund are third cousins to (muni) pre-refunded bonds. If you read the linked description, you'll find many of the same attributes as claimed for the RiverPark fund, for similar though not identical reasons. Short duration, price stability, reduced credit risk, etc.
I think you mean the junk bond decline at the end of September (JNK declined from a price of 38+ in September to 36.19 at the end of the month, and maybe another percent or so into early October). Last Sept/Oct, RPHYX declined from 9.93-9.94 down to 9.86 in early October, before recovering through October. A whopping swing of 0.8% on a fund that yields 3-4%. I can live with that.
A question I have is with the use of cushion bonds (see current fund commentary). I like cushion bonds, I own them, I seek them out. But not for junk. They're good because they let you buy long term bonds (with commensurate higher yields) with the expectation that they'll get called early (since the coupons are high) - higher yields on shorter term bonds. A risk is that when the time comes for the bonds to get called, the issuer may not be able to refinance (bad credit risk) and thus the bonds really do become long term bonds. In a rising rate environment, the higher coupon protection only goes so far. IMHO it's more the likelihood of call that makes these attractive than the long term yield. And issuers of junk bonds strike me as less likely to be able to call bonds, even if it makes numeric sense for them to do so.
"this fund will lose value as it did last October." I think the manager would argue that the decline is a transitory fiction. The bonds in his portfolio are marked to market each day; that is, he has to assign the price he'd get if he tried to sell them on the secondary market that day. If I understand him correctly, he almost never sells a holding on the secondary market. The strategy is buy called (or likely to be called) bonds, hold them for 30 days (in the case of called bonds), collect one interest payment and have the issuer who called them redeem them at face. So he may have a 10-year, high-yield called bond from (say) Ford Motor. He could sell it on the panicked secondary market at (say) 50% of face or hold it until the end of the month, knowing the Ford is going to pay 100%. In either case, though, he has to calculate the fund's daily NAV on the assumption that he was going to sell.
My (iffy) recollection from our conversations is that typically 70% of the portfolio would go to cash within 90 days. While that doesn't eliminate losses if the market locks up as it did for a while in '08 (was it two-thirds of money markets that had threatened to "break the buck" unless their sponsors underwrote them?), I suspect it limits the downside for folks with a time frame longer than three months.
When he says "this fund is not an ATM machine," I think he's probably agreeing that it's not a pure substitute for cash. That said, bonds are really not my specialty and so folks with curiosity and a clue might be in a better position to ask and follow up questions than am I.
For what it's worth,
David
According to the fund commentary, it's 50% that will be redeemed within 90 days (based on maturity date or call date if already called). Perhaps the manager is suggesting that another 20% are yet to be called and redeemed within 90 days, or perhaps your memory is indeed iffy. Either way, the only figure I've seen is 50%.
This fund fits into the "enhanced cash" category. The general advice is not to use these funds for cash you'd need in under 1-2 years. That's just another way of saying such funds are not ATM machines.
Then chalk it to up an iffy memory and the aftermath of vacation.
David
SJNK is a newbie from March 14, 2012, and not unlike comparing RPHYX to SPHIX, is not a totally valid consideration; but is something else to view. I chose the traditional active managed SPHIX, as this fund has a very good record over many years (we do own SPHIX).
Okay, back to stimulating the northwest MI economy from the tourist side of life.
Regards,
Catch
How long will the fund be able to operate as the sole fund with this strategy? What will happen to the capacity when "me too" funds crash the party?
I suppose smaller funds might see an opportunity, but maybe this is where the first mover has an advantage. Based on the MFO profile, these kinds of investment opportunities don't come up every day and they aren't readily accessible. If RPHYX is the biggest buyer on the market for now, then they would definitely have an advantage in terms of information and access.
I do think that RPHYX's expense ratio is kind of high -- that is one area where we could certainly benefit from some competition!
I remember hearing that BlackRock (?) was planning to build a bond trading platform that would allow more efficient trading of corporate bonds. I think this kind of platform might be more dangerous to RPHYX in the long run, or at least the RPHYX manager would have more competition for investment opportunities.