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In their fiscal year 2000 Annual Letter to Shareholders, Leucadia National Corporation’s former chairman, Ian Cumming, and former president, Joseph Steinberg, spoke to this dynamic, likening themselves to groundhogs:
“We pop out of our holes each and every morning and look around the marketplace for investment opportunities. The first question we ask is, ‘Do we see anything that can earn more than the risk-free rate, adjusted for risk?’ When the markets are as high as they have been in the last many years, we saw very little of interest and went back down in our holes…Patience is required for this process, but it is not complicated.”
My 2 cents: I appreciated this quote. But here is the dilemma for investment managers (IMs)- they have to put committed funds to work in order to justify their annual fees. Investors demand it. Waiting long periods for opps to materialize (essentially, market timing) is often a no-no. It's rare to find IMs with the chutzpah to sit in cash if they don't like the current market conditions. Probably more acceptable for "sophisticated investors", but even then...their patience will wear thin if the IM's guess wrong.
BRUFX= 32% "cash" according to Mooplestar. That's a lot of uncommitted money. Definitely a laggard in '23. And laggard YTD in '24, too. If this keeps up, it'll be time to switch. This fund is not doing what it had been doing for us.....
Apparently what M* considers cash depends on the context:
Questions & Answers | Methodology
Traditionally Morningstar has treated bonds with short terms to maturity, less than 1 year, as a cash equivalent, will these holdings be included in the calculation of fixed income analytics such as duration or credit?
Morningstar classifies certain short term fixed income holdings as asset class "Cash" rather than "Bond". Prior to October 2016 the term of the security was less than one year, but it was changed to less than 92 days at that time. Regardless of their asset classification, holdings that are fixed income will be included in Morningstar fixed income calculations.
While Morningstar's old (really old) Portfolio Data Definitions page says:
Cash encompasses both actual cash and cash equivalents (fixed-income securities with a maturity of one year or less) held by the portfolio plus receivables minus payables.
"Cash and Cash Equivalents — Cash equivalents include short-term, highly liquid investments with a maturity date at time of purchase of three months or less."
Note my underlined "at time of purchase".
Under Management's Discussion for RPHIX, pg 5, "As of September 30, 2023, 59% of the Fund’s invested portfolio is expected to mature or be repaid within 90 days,..."
This is why M* data on Cash & Cash Equivalents differ significantly from that reported by the fund because M* doesn't use the proviso "at time of purchase". Its 92 days or less maturity applies to all securities at the time of the snapshot, whatever they are called or whenever they were purchased.
Clearly it's important to know the precise definition of terms when reading statistics. Even back when M* was using 1 year maturities as the cutoff for cash equivalents for analyzing portfolios (i.e. before 2017), it also used the 3 month definition in other contexts. Here's an excerpt from a 2014 M* glossary:
Generally, only investments with original maturities of three months or less qualify under this definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months
This restriction of cash equivalents to securities with original (time of purchase) maturities of three months is lifted straight from the official definition of cash equivalents as given by the Financial Accounting Standards Board (FASB) Accounting Standards Codification® (ASC) 230-10-20. That's what reporting entities, like mutual funds, corporations, etc. use:
Cash equivalents are short-term, highly liquid investments that have both of the following characteristics:
a. Readily convertible to known amounts of cash b. So near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month U.S. Treasury bill and a three-year U.S. Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months
The FASB Accounting Standards Codification® is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities.
Personally, I consider Treasuries and CDs with just weeks until they mature to be equivalent to cash regardless of when I acquired them. I consider no penalty CDs to be cash regardless of maturity length.
Suppose I have a 2 year T-note that I acquired at auction and it has 6 weeks until maturity. GAAP says that's not a cash equivalent. But if you and I swap the same T-notes, then they become cash equivalents because we just acquired them. I'm sure the accountants know what they're doing, but by my kitchen-table bookkeeping those two T-notes are the same.
OSTIX: I do not view OSTIX as a competitor but rather complementary. It is the investment community (including this board) that actively compares the two funds. I think folks should consider owning both OSTIX and RSIIX rther than just one of the funds. The underlying portfolio, construction and approach are very different with some but limited overlap in holdings (in name and allocation). Yet, our risk metrics are very similar. I have a great deal of respect for Carl and his team.
RSIIX/RSIVX: When making comparison, please use RSIIX as it is the institutional class that is most alike to others one is reviewing. For MFO participants that are interested in the lower expense institutional class (RSIIX), please contact [email protected] and he can inform you of ways to access via direct platform via US Bank.
2022 Industry Drawdown and COVID Drawdown: Very different scenarios and RSIIX as well as all CrossingBridge products were top in performance in 2022. As for COVID, RSIIX recovery back to high water mark took (if memory serves) around 2 mos longer than High Yield Index and others, but the continued upward return lasted longer (more sustained).
RiverPark Short Term High Yield (RPHIX): The mandate is to focus as a cash alternative profile for holding periods of 6 months or longer.
Cash: Nice conversation but way more nuanced than the board in regards to the funds in our family. For instance, a called bond has a 30 day effective maturity regardless of the stated maturity and I believe Morningstar may capture in calculation provided. Other examples such as event driven status also exist and one should read our commentaries to understand. Also, timing makes a difference based on financial market calendar activity and flow of funds. In a very sarcastic voice, I just love it when we get a large inflow between Christmas and New Year.
If you want to have a more detailed conversation one on one or in a group call, happy to schedule.
The commentary is great and essential, I try to keep it "simpler". 2022 was one of the worst for bonds. MM+RPHIX were great. Then the Fed first blink was 11/2022. From that point, you should start looking to make more money. You have 3 great choices (funds)...from lowest risk/SD to highest...RPHIX,CBLDX,RSIIX. Their distributions match the above RPHIX has the lowest and RSIIX = highest. I'm not in the prediction business but there is a good chance that in 2024 RPHIX will make 5+%...CBLDX 8+%...RSIIX 9+% and that is just the distributions. CBLDX would be an easy choice to make. I invest only in bond OEFs and why I never invested directly in indexes, treasuries, or no flexible funds, think VG. This is exactly what I'm looking for, which is great performance with much lower risk/SD. Disclaimer: I don't own any of the funds above...at this moment.
Comments
In their fiscal year 2000 Annual Letter to Shareholders, Leucadia National Corporation’s former chairman, Ian Cumming, and former president, Joseph Steinberg, spoke to this dynamic, likening themselves to groundhogs:
“We pop out of our holes each and every morning and look around the marketplace for investment opportunities. The first question we ask is, ‘Do we see anything that can earn more than the risk-free rate, adjusted for risk?’ When the markets are as high as they have been in the last many years, we saw very little of interest and went back down in our holes…Patience is required for this process, but it is not complicated.”
My 2 cents:
I appreciated this quote. But here is the dilemma for investment managers (IMs)- they have to put committed funds to work in order to justify their annual fees. Investors demand it. Waiting long periods for opps to materialize (essentially, market timing) is often a no-no. It's rare to find IMs with the chutzpah to sit in cash if they don't like the current market conditions. Probably more acceptable for "sophisticated investors", but even then...their patience will wear thin if the IM's guess wrong.
But cash is paying good now. It may be more of a drag in equity funds, but less so for bond funds.
While Morningstar's old (really old) Portfolio Data Definitions page says: https://portfolio.morningstar.com/instantxray/datadef.html
https://pdfhost.io/v/lw2RlJt~L_MStar_Classification_Fixed_Income_022022
"Cash and Cash Equivalents — Cash equivalents include short-term, highly liquid investments with a maturity date at time of purchase of three months or less."
Note my underlined "at time of purchase".
Under Management's Discussion for RPHIX, pg 5, "As of September 30, 2023, 59% of the Fund’s invested portfolio is expected to mature or be repaid within 90 days,..."
This is why M* data on Cash & Cash Equivalents differ significantly from that reported by the fund because M* doesn't use the proviso "at time of purchase". Its 92 days or less maturity applies to all securities at the time of the snapshot, whatever they are called or whenever they were purchased.
https://www.riverparkfunds.com/assets/pdfs/resources/rp_fund_trust/annual_report/RiverPark_AnnualReport.pdf
This restriction of cash equivalents to securities with original (time of purchase) maturities of three months is lifted straight from the official definition of cash equivalents as given by the Financial Accounting Standards Board (FASB) Accounting Standards Codification® (ASC) 230-10-20. That's what reporting entities, like mutual funds, corporations, etc. use: ASC 230 July 2023
For completeness and wonks: FASB defines GAAP. FASB cash flow update
Personally, I consider Treasuries and CDs with just weeks until they mature to be equivalent to cash regardless of when I acquired them. I consider no penalty CDs to be cash regardless of maturity length.
Suppose I have a 2 year T-note that I acquired at auction and it has 6 weeks until maturity. GAAP says that's not a cash equivalent. But if you and I swap the same T-notes, then they become cash equivalents because we just acquired them. I'm sure the accountants know what they're doing, but by my kitchen-table bookkeeping those two T-notes are the same.
RSIIX/COVID: We discussed in our 1Q20 Letter. I refer you to: https://www.riverparkfunds.com/assets/pdfs/rpsthyf/commentary/RiverPark-Cohanzick_1Q20_Shareholder_Letter.pdf
OSTIX: I do not view OSTIX as a competitor but rather complementary. It is the investment community (including this board) that actively compares the two funds. I think folks should consider owning both OSTIX and RSIIX rther than just one of the funds. The underlying portfolio, construction and approach are very different with some but limited overlap in holdings (in name and allocation). Yet, our risk metrics are very similar. I have a great deal of respect for Carl and his team.
RSIIX/RSIVX: When making comparison, please use RSIIX as it is the institutional class that is most alike to others one is reviewing. For MFO participants that are interested in the lower expense institutional class (RSIIX), please contact [email protected] and he can inform you of ways to access via direct platform via US Bank.
2022 Industry Drawdown and COVID Drawdown: Very different scenarios and RSIIX as well as all CrossingBridge products were top in performance in 2022. As for COVID, RSIIX recovery back to high water mark took (if memory serves) around 2 mos longer than High Yield Index and others, but the continued upward return lasted longer (more sustained).
RiverPark Short Term High Yield (RPHIX): The mandate is to focus as a cash alternative profile for holding periods of 6 months or longer.
Cash: Nice conversation but way more nuanced than the board in regards to the funds in our family. For instance, a called bond has a 30 day effective maturity regardless of the stated maturity and I believe Morningstar may capture in calculation provided. Other examples such as event driven status also exist and one should read our commentaries to understand. Also, timing makes a difference based on financial market calendar activity and flow of funds. In a very sarcastic voice, I just love it when we get a large inflow between Christmas and New Year.
If you want to have a more detailed conversation one on one or in a group call, happy to schedule.
Everyone, The commentary on fund management starts on page 5 of the pdf.
2022 was one of the worst for bonds. MM+RPHIX were great. Then the Fed first blink was 11/2022. From that point, you should start looking to make more money.
You have 3 great choices (funds)...from lowest risk/SD to highest...RPHIX,CBLDX,RSIIX. Their distributions match the above RPHIX has the lowest and RSIIX = highest.
I'm not in the prediction business but there is a good chance that in 2024 RPHIX will make 5+%...CBLDX 8+%...RSIIX 9+% and that is just the distributions. CBLDX would be an easy choice to make.
I invest only in bond OEFs and why I never invested directly in indexes, treasuries, or no flexible funds, think VG.
This is exactly what I'm looking for, which is great performance with much lower risk/SD.
Disclaimer: I don't own any of the funds above...at this moment.
RPHIX +17.02%
TUHYX +26.92%.
https://schrts.co/TmZRSSMB
Below is a 5 year chart. I added CBLDX.
https://schrts.co/HWUMzpcV