Apologies for the less than perfect cut & paste from M*. But think illustrates the point I’m wondering about. The fund is PYLD - Pimco Multi-Sector Bond ETF. How is it that they’re 190% in fixed income and -90% in cash? The only thing I can think of is leverage. But doubling-down on their bond bets by borrowing so much seems out of character for a fund like this and knowing a bit about the Pimco managers (including Dan Ivascyn). Is there another explanation for this? Shorts? Would they really go short to that 90% extent? Feels like a powder keg. I do not currently own, but am considering it. Little experience with PIMCO. Good reputation. Compared to a fund like JPIE how would you rate the relative risk characteristics?
Thanks in advance for your thoughts.
Asset Class Net Short Long Cat. Index
U.S. Equity 0.00 0.00 0.00 1.39 0.00
Non-U.S. Equity 0.00 0.00 0.00 0.15 0.00
Fixed Income 190.05 1.74 191.79 112.15 99.98
Other 0.20 0.00 0.20 0.15 0.00
Cash -90.25 92.77 2.52 13.39 0.00
Not Classified 0.00 0.00 0.00 3.42 0.02
Comments
Anyway I found THIS
Maybe it is, maybe it isn't.
M* writes highly of PYLD (Bronze rated, however). I’ve held it for several months in the past. Steady eddy during that time. Even suggested it to a poster recently. It has a “average credit rating / surveyed” of A which is well above some other multi-sector funds, including the one I referenced earlier from J.P. Morgan. It has, however, a very high weighting to “Securitized Debt” obligations which are hard to analyze..
Interestingly, if you believe M* (??) Rick Rieder’s year old etf BINC is sitting in 43% cash. Geez. That doesn’t sound like Rieder. I’ve always considered bond funds more difficult to understand than most equity funds. I think this discussion touches on some of the reasons. Maybe “Only the Shadow knows.”
What I think is that PYLD is roughly short the same amount of bonds that it holds long, thinking their superior analysis will win out over time. Reasonable - but unlike anything I’ve seen in a bond fund.
From PYLD Prospectus,
".....The Fund seeks to achieve its investment objective by investing, under normal circumstances, at least 80% of its assets in a multi-sector portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements. “Fixed Income Instruments” include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities....."
I don't fully understand Pimco's black-box, but based on its existence and superior record for YEARS, I make an exception.
But I don't make such exceptions lightly. In general, I stay away from funds that rely heavily on options/futures/derivatives.
I suppose this falls in the categories of not fully knowing what my car mechanic does, or what my spine surgeon does. I just pretend to "understand" those broadly.
There’s no perfect bond fund. Short duration isn’t likely to get you the yield you want. Longer duration can feel like a roller coaster when rates move sharply. Many “core” bond funds dip heavily into BB and below. These can appear very safe & steady for long periods (as in the recent past) but can tank rapidly in a recession or during unexpected crisis. Both the highly rated JPIB and JPEI sometimes hold up to 50% in lower rated bonds, but are below that presently (30-35% as I recall).
Yes - @yogibearbull - M* does tend to get things mixed up.
+1, @yogibearbull.
One year chart(https://schrts.co/JRNGpRmT)
3 year chart(https://schrts.co/RfSCENuJ)
The above is not a recommendation or a guarantee; do your own due diligence.
I sold PIMIX in 01/2018 after I invested over 50% of my money in it for years.
Thanks @AndyJ. Sounds like M* was off by roughly a factor of 3. When I held PYLD in the past, Fido’s analytics didn’t seem to notice anything abnormal. Appeared to read it as a normal bond allocation in computing my allocation across all assets.
A few bond funds I watch, with today’s move …
JPIE -0.09%
LSST -0.14%
BINC -0.15%
PYLD -0.16%
GNMA -0.32%
JPIB -0.40%
BRTR -0.52%
GBAB -0.88%
It’s of little importance longer term. But if you’re trying to keep daily volatility lower or balance out a risk somewhere else (equities, junk bonds, commodities) than you might care about how your bond fund moves under varying circumstances.
DSEEX is a good case study because it is conceptually simple. Derivatives provide the exposure to a stock index, and the "real" cash is invested in bonds. Fairly transparent relative to Pimco.
It's not the negative cash exposure per se that's confusing, it's Pimco's management in general. As yogi suggested, investing with Pimco is to some extent a matter of faith.
It has no cash (actually a few percent negative) compared to M*’s reported 43%!
And very little sub investment grade paper - roughly 25% (but almost all BB). You couldn’t tell that from M *. Looks like a currently moderate duration of 3-5 years.
Interestingly, Rieder has gone into international holdings with about 30% (+ - ) listed as non-US.
I don’t worry much about historical performance with bond funds. Much more interested in what they hold. We’ve been through some very abnormal times.
Derivatives are fine. (thanks @msf) They are used near exclusively by commodity funds (Who wants a boat-load of hogs?) But the ice below me feels a little thicker when they’re not being employed to large extent. I’ve spent hours exploring the world of bond funds, as might appear. I did come across mention that certain tactics don’t work as well for the manager in an ETF as they do with an OEF. But don’t remember the exact context.
Thanks all. Very helpful.
M*'s "classic" view is a bit closer to what you described: Then there's M*'s market value view that shows net cash exposure of -3.86%. That is close to what you described. (Note that Blackrock describes its allocation table as percentages of market value.) Differences are likely due to Blackrock reporting as of June 25 and M* reporting as of June 13.
P.S. When you cut-and-paste these tables, precede them with <PRE> and follow them with </PRE>. Asside from needing to add a few tabs to get the alignment right, this will display the tables cleanly. (I had to add a tab after "Other" and after "Cash".)
Blackrock reports 14.23% B rated (as well as 21.79% BB rated); this is close to M*'s 13.96% B rated and 20.82% BB.
https://www.blackrock.com/us/individual/products/331752/blackrock-flexible-income-etf
Add to it the use of options/futures/derivatives with PIMIX,PYLD and you don't know what you get. The 1-3 charts proved that RCTIX is a better risk/reward fund, and BTW, it's distribution is higher too.
The use of ETF is inferior because some people may panic and sell in the middle of the day just to find later the price reverse.
Good luck.
For the average Joe, funds are better.
On the main "Discussions" and "Discussions that have comments" pages each thread has a small "star" icon out at the end. If you click on that star it saves the thread to your "My Bookmarks" list, making it very easy to find that thread in the future.
A very educational thread. I was up half the night poring through income-oriented ETFs and CEFs. Some very interesting prospects - maybe for another day. I’ll keep my final selection to myself. It’s not always a matter of finding the very best fund out there. Sometimes it’s a matter of buying what complements the other 90% of your portfolio and serves the overall risk profile you are working to maintain.
Not opposed to owning a black box or two. To me a “black box” is an often complex difficult to understand methodology which the fund management firm / fund manager probably understand better than the shareholder does. They typically employ derivatives, leverage, shorting strategies, computer driven algorithmic trading - or a combination of these. Almost always they are more expensive than funds designed for “the average Joe”.
Looking around for a better definition of an Black Box, I uncovered an interesting article from 2022 by our own Charles Lynn Bolin.
So, depends is a great word, but not when 90+% are your average Joes.
Sweeping generalizations are seldom true; they are, in effect, predictions of the future and allow for no exceptions. That's why I avoid them in most cases (See what I did there?). When you're tempted to say something like "This results in this"; it has to be true 100% of the time, or it's incorrect!
So, instead of being only 90% correct, I could have been 100%. I'll take that.
You start to remind me Bill Clinton...what is is?
Now, let's all check every word someone says on any post, and we are going to have a lot of unwanted consequences.
My 2 cents, Derf