Down to 59% in junk bonds (MNHYX) The rest is in ....., ....., and ...... I assume the strength in PONDX is due to its exposure to residential mortgage backed securities?? Seems like everyday there is a new mini-bubble article on the junk bond market. I guess that is good as markets usually flame out when everyone is in love with them not when fear is on the rise. Junk bonds as per the Merrill Lynch High Yield Master II Index (the proxy for junk bonds) has seemingly hit one new all time high after another since the end of June. Lots of areas in bondland seem extended but will let price take me out, not fear or the opinions of others. Price, as in a percentage decline off recent highs.
Comments
Every time mortgage rates are eased by the Fed's (buying of MBS) older dated MBS become more valuable as well as being higher yielding than what the Fed is willing to buy. This is great for new home buyers, for banks willing to work out a deal with an underwater homeowner and for funds like PONDX.
PONDX seems well position for the next round of easing and I might also include REIT funds as beneficiaries of the Fed action. The Feds seems to be focused on helping housing and banks get back on their feet.
To me, this strategy possesses a potential multiplier effect for job creation and economic growth but has to be done slowly. If....when rate reverse a fund like PONDX will still hold a variety of MBS maturities which should help mute a sudden reversal of rates.
Also, at that time I am hoping management (at PIMCO, Doubleline, MetroWest etc.) are smart enough to know that a new set of strategies is needed to keep the Income flowing.
Does it concern you at all, or you trust the manager?
Andrei, I never marry a fund and exit a small percentage decline from any recent highs. Sometimes they just keep declining while other times I have to jump back in. I am one of those dreaded "timers" from the 90s albeit never try and time per se but simply jog along with the trend.
Isn't this Pimco's derivative strategy? A couple of references:
"Derivatives have been used as an integral part of PIMCO’s strategies since 1980. It primarily uses these instruments to manage risk and take advantage of market inefficiencies. It does so by adjusting the fund’s interest rate and yield curve exposures and as a substitute for physical securities. Table 1 compares performance of accounts that allow futures to those that do not. It indicates that PIMCO adds more value with some consistency when using futures."
http://county.milwaukee.gov/ImageLibrary/Groups/cntySupervisors/cntybrdspecialcommittees/2009/Update_on_PIMCO_Total_Return_Fund__July_2009_.pdf
Regarding the 150% investment, I often double check portfolio stats from Morningstar by going directly to the fund company. Below is a link to Pimco Income's Portfolio as of 7/31/12. Click on "Portfolio" after following the link.
http://investments.pimco.com/Products/pages/314.aspx
I don't see anything that suggests that they are leveraged from the Pimco website.
Perhaps their outperformance has to do with their large foreign and EM bond stakes?
Happy shareholder!
Mike_E
"... Obama represents stimulae, bailouts, and low interest rates." -
Yep - but look who he followed )-: (DJI = 7949 beginning of Obama's Presidency)
A quick check and a fairly good recall indicates that DBLTX is currently (July, 2012) about 80% in mortgage issues; but just a month or so backwards was at about 60% mortgage issues with most of the balance in Treasury and Corp. issues. DBLTX has favored the mortgage area; as I recall this is Mr. Gundlach's favored knowledge area.
YTD's for a few related bond pieces:
MBB = + 2.1%
VMBS = +2.6%
LQD = + 8.1%
IEF = + 4.5%
TIP = + 5.3%
Fidelity's two related funds in the mortgage area are slow movers, too; so far this year.
From what I have followed through the year so far, is reflected above; and in particular, that most mortgage funds have been on a slow path forward versus other bond sectors.
If DBLTX remains more into the mortgage area, I would expect to find a reaction to the 80% exposure to the mortgage area to be reflected in the fund's pricing beginning Aug. 1. Prior to this date, some of the boost for this fund may have come from larger holdings in Treasury and Corp. issues. DBLTX is not being a dog by any means, and if the current path of growth would remain, a year long holder of the fund could be looking at about 10% by Dec. 31. If that ain't good enough for most folks, well..............call a hedge fund manager, I guess; and ask to view their record book.
Just a few late night brain farts.
Take care,
Catch
http://www.moneynews.com/InvestingAnalysis/Gross-Pimco-Bond-King/2012/08/29/id/450230
Thanks for this article as well. Like any investment...keeping an eye on the cook and the ingredients in the stew is an ongoing process.
I've owned too many investments that turned out stinkers to get too excited about one success but; like my inconsistent golf game, it keeps me wanting to play another round.
Right now PONDX is one of my favorite clubs.
Perish the thought.
http://quote.morningstar.com/fund/chart.aspx?t=opchx®ion=USA
Don't get me wrong - I love your fund selections. But you may need a quick exit.