How risky might this etf be as a cash stash? (JAAA)

Comments

• AndyJ

  November 24 edited November 24

  @Hank, I held it for the last year but sold it recently. The HY spread plunged to near record lows back in early August, and JAAA responded poorly, briefly. (The spread quickly trended back down again afterwards.) I took JAAA's response to the spike as an indication of underlying risk.
  
  It might be fine for some time longer, but the spread's been this low only a couple of times before, one of them being right before the Great Recession, when it spiked up from ~2.5 to ~20.
  
  Again, the income side looks good, but I wouldn't think of it as a cash sub. Ultra short duration etf's I own right now are USFR, MINT, and VRIG. I think any of those, and others, are closer to being cash subs than JAAA.
  
  On the FRED chart, choose maximum as the time frame to see what I meant above about the record spread lows.
  
  Edit: msf makes a good case for PAAA just below. From a quick M* chart comparison, it's competitive with JAAA return recently.
• msf

  November 24 edited November 24

  A couple of months ago I drafted up bits and pieces to an older thread on this. Never posted (we were on an extended foreign trip at the time and didn't have a chance to organize). I will dig that up when I've a little more time.
  
  Here's @Junkster's comment in that thread pointing out how steady PAAA is.
  https://mutualfundobserver.com/discuss/discussion/comment/181270/#Comment_181270
  (Part of what I looked at was PAAA vs JAAA and PGIM's comments on CLO portfolios. PAAA is pure AAA which may account for its slightly worse returns and somewhat better stability.)
  
  In another (older) thread, here's @yogibearbull's comments on how these AAA ratings are synthetic (and with latent risks)
  https://www.mutualfundobserver.com/discuss/discussion/comment/176388/#Comment_176388
  
  Note that CDOs and CLOs are not quite the same. JAAA and PAAA are CLOs, not collateralized debt obligations. (Though what the difference is between a loan and debt isn't obvious without checking my notes.)
  
  I had concluded that I was comfortable enough with the concept to consider investing.
  
  Will dig up draft post later.
  
  Edit: Resurrected draft, with no editing, just one addition, can be found here:
  https://mutualfundobserver.com/discuss/discussion/comment/183774/#Comment_183774
• yogibearbull

  November 24

  Structured-CLOs ultra-ST ETFs such as inv-grade JAAA and junk JBBB will do better in strong credit markets.
  
  Question is whether their extra returns are worth the extra risks vs regular ultra-ST ETFs (ICSH, JPST, USFR) ?
  
  Many are new, but 2022 was a tough year for credit, so compare what happened then.
  
  I would think of "cash" in this context as something to liquidate without hesitation to make other fund purchases or pay bills.
• WABAC

  November 24 edited November 24

  yogibearbull said:

  Structured-CLOs ultra-ST ETFs such as inv-grade JAAA and junk JBBB will do better in strong credit markets.
  
  Question is whether their extra returns are worth the extra risks vs regular ultra-ST ETFs (ICSH, JPST, USFR) ?
  
  Many are new, but 2022 was a tough year for credit, so compare what happened then.
  
  I would think of "cash" in this context as something to liquidate without hesitation to make other fund purchases or pay bills. (emphasis added)

  I think of USFR for this. It holds two years worth of what would be RMD's if I was required to take RMD's
  
  I own JAAA for now. I do not think of it as anything like cash. Would I be smart enough to get out ahead of 2008 type event? I sure hope so.
• FD1000

  November 24

  If you want to make more, forget about words like "safe" "investment grade" "risk" "in the past it did terrible". Success comes from an uptrend with lower volatility (in my case)...and good trading.
  
  If you want to be safe with low risk and hold for years, you will miss opportunities. What I find funny that my so-called risky funds had lower volatility and great returns. Nothing is guaranteed, of course. Just compare DODIX to CLOZ
  
  See one year return for the above 5 funds (https://schrts.co/PJYGjPTK)
• BaluBalu

  November 24 edited November 24

  2008 type event gave us plenty of lead time. Covid crash probably is a better test of “cash like.” Even that may seem like plenty of lead time vs how fast markets move these days. Yen carry trade event in Aug gave us a glimpse of our current reaction function. Now, we are against machines.
  
  Cash (USFR, SGOV, Mm) is cash. Trash is trash. Everything in between is subject to mispricing. With the state of current spreads, I am venturing to guess current mispricing is with rose colored glasses.
• hank

  November 24 edited November 25

  Well, that thread initiated by @Junkster in September (”BlackRock’s Rick Rieder on the Golden Age of fixed income”) which @msf relinked above is a beauty. Afraid I was napping during portions of it. It does drift around a bit, but has some great stuff on CLOs and mentions JAAA in particular. Thanks @AndyJ for sharing your experience. I’d cut & run sell and redeploy under the circumstances too.
  
  Initially I bought a sizable chunk of JAA and positioned it in my risk-on portfolio as a more conservative element. Sold most & used proceeds for another purpose some weeks ago. The stability I observed monitoring the small remainder in recent weeks had me puzzled … - Having read the thread again @Junkster’s input, the fund doesn’t sound like a respectable substitute for cash - but might work for some.
  
  WOW to Rick Rieder! Who am I to disagree? But darned if I’ll load up on bonds of any duration …. Too many geopolitical / economic unknowns. (Tell me who the Fed chief will be one year out!)
  
• AndyJ

  November 24

  @Hank: "cut and run." That's not the case exactly. It's look at the data and decide where I think $ is best deployed, and in this case, it was "sell and redeploy."
• linter

  November 25

  i've held equal amounts of JAAA/CLOZ for almost a year now and have had no regrets. They seem to be slowing down at the moment but i'll hang out for a while longer. I have money in an OEF that also holds CLOs; it hasn't done as well but perhaps it'll do better come the inevitable downdraft.
• FD1000

  November 25 edited November 25

  linter said:

  i've held equal amounts of JAAA/CLOZ for almost a year now and have had no regrets. They seem to be slowing down at the moment but i'll hang out for a while longer. I have money in an OEF that also holds CLOs; it hasn't done as well but perhaps it'll do better come the inevitable downdraft.

  CLOZ made 1.06% in the last month per M*.
  
  
• hank

  November 25 edited November 25

  AndyJ said:

  @Hank: "cut and run." That's not the case exactly. It's look at the data and decide where I think $ is best deployed, and in this case, it was "sell and redeploy."

  Agree. Sounds a lot smoother. I’ve edited my previous post to reflect a more sophisticated & organized transition out of JAAA and into something else.

  linter said:

  i've held equal amounts of JAAA/CLOZ for almost a year now and have had no regrets. They seem to be slowing down at the moment but i'll hang out for a while longer.

  Yes, I sometimes think JAAA might go better mixed rather than straight-up.
• davidrmoran

  November 25

  god, what a couple of winners
• hank

  November 25 edited November 25

  Thanks. I respect revere your opinions @davidrmoran.
• davidrmoran

  November 26

  If only they were worth reverence regularly
• hank

  November 26

  +1