Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Regarding my use of the term "low risk bond oefs", I was referencing typically used risk measures, as quoted on M*. M* provides a section entitled "Risk" for each mutual fund, and in that "risk" category, there are several categories of information, such as Standard Deviation, Capture Ratios, and an overall risk score of 0-23 for the "conservative" category of mutual funds. I guess each individual can offer their particular definition of risk, but I was just seeking the bond oefs that fell into the lower risk categories of M*.
My question, at this point in time, is whether "low risk" is a good choice with rate cuts on the near horizon? And with inflation around 3%, possibly going higher. I do realize that that is not the OPs question. But, wonder what various posters are thinking in this regard.
It is a very personal and debatable whether "low risk is a good choice with rate cuts on the near horizon", but it is what this 77 year old retiree prefers at this stage of my life. I am in a preservation of asset stage in my life, which may not be "a good choice" for other investors, with other goals and objectives.
FD mentioned a fund above for consideration--LCTRX. It is categorized as an Intermediate Core Plus bond oef, but it is very different than other funds in this bond oef category, in that it has a very low duration and very low standard deviation. This fund uses CLOs (Collaterized Loan Obligations) defined in Investopedia in the following way:
"Collateralized loan obligations (CLOs) are structured securities that bundle a pool of lower-rated corporate loans and sell them to investors in tranches. These investments, managed by CLO managers, offer an opportunity for investors to gain exposure to higher-than-average returns by assuming default risk."
I am curious if any other posters have opinions about LCTRX and the use of CLOs.
@dt. The definition of CLO’s you cited has some obvious red flags for me when seeking low risk. “Lower rate corporate loans” and “assuming default risk.” For some trying to squeeze out higher returns out of bonds while dancing near the exit this might be a valid strategy but as a replacement for CD’s and MM funds ,,, not for me. A bundle of anything lower rated is still lower rated. Not lower risk.
CLO -- take all the crappiest loans you can find, throw them in a bag and package them up in a pretty bow. Pay the rating agencies to label them AA and sell them to the public. What could go wrong? Weren't 2008 problems based on CLO packages of sub-prime and liar loans? They actually call them liar loans, amazing. I could be mistaken.
FD mentioned a fund above for consideration--LCTRX. It is categorized as an Intermediate Core Plus bond oef, but it is very different than other funds in this bond oef category, in that it has a very low duration and very low standard deviation. This fund uses CLOs (Collaterized Loan Obligations) defined in Investopedia in the following way:
"Collateralized loan obligations (CLOs) are structured securities that bundle a pool of lower-rated corporate loans and sell them to investors in tranches. These investments, managed by CLO managers, offer an opportunity for investors to gain exposure to higher-than-average returns by assuming default risk."
I am curious if any other posters have opinions about LCTRX and the use of CLOs.
Weren’t you a victim of the SEMMX scam that it was a cash substitute in 2020? I wouldn’t touch any fund associated with the fellow that has run LCTRX since 1997. Investigate its punk performance in 2015 and why. I would stick with the guy that runs HOSIX who at one time worked at Leader. He has done an admirable job at the helm of Holbrook.
Also I would like to retract a comment I made a while back about not touching HOBIX with a 10 ft pole. Not that I am recommending it for the purpose of this thread. Also as you alluded to, as the Fed fund rates declines so will the yields on a lot of funds mentioned in this thread. With your adversity to risk would just stick with money markets, CDs and Treasuries. I mean you already missed some big bull markets in many bond sectors over the course of the past several years. As for CLOs, they have been widely discussed here for some time now. Check the archives.
Surprised no one has mentioned a fund widely held by the populace here NRDCX. Talk about low volatility with nary a down day.
More than just substituting one word ("debt") for a seemingly synonymous one ("loan"), these are different types of instruments. Though in some significant ways (structured in tranches, built on top of lower grade debt), they are similar.
IMHO a significant distinction is in diversification across industries (not just geographic diversification as with CDOs). Ultimately, is CLO vs. CDO a distinction without a difference? You decide. I suggest looking beyond the similarity of names when deciding.
Regarding my use of the term "low risk bond oefs", I was referencing typically used risk measures, as quoted on M*. M* provides a section entitled "Risk" for each mutual fund, and in that "risk" category, there are several categories of information, such as Standard Deviation, Capture Ratios, and an overall risk score of 0-23 for the "conservative" category of mutual funds. I guess each individual can offer their particular definition of risk, but I was just seeking the bond oefs that fell into the lower risk categories of M*.
Those M* risk numbers don't include the last recession. I don't think of the covid panic as a real test.
At least I understand the asset backing up securitised car loans. What's the asset behind student loans?
And maybe everything is better with securitized debt since the last blow up. OTOH, we're talking about the industry that is trying to push everyone into private credit and equity.
It's hard to completely avoid the securitised trade. But at least with some of the older lower volatility funds like BBBMX, PYLMX, and FGUSX I can use MFO Premium to look at how they held up in 2008.
Thanks to all who have discussed LCTRX and collateralized loan obligations--very clarifying. Regarding my comments on Risk, I am just trying to establish some understandable criteria for discussing funds. It is just one step in the process of doing a due diligence review of potential funds that at least fall into the low risk criteria of M*
junkster: "Weren’t you a victim of the SEMMX scam that it was a cash substitute in 2020? I wouldn’t touch any fund associated with the fellow that has run LCTRX since 1997. Investigate its punk performance in 2015 and why. I would stick with the guy that runs HOSIX who at one time worked at Leader. He has done an admirable job at the helm of Holbrook."
No I was not a "victim" of the SEMMX scam. I did own SEMMX for several years, but fortunately I was successful of trading out of SEMMX at the very early stages of its decline in 2020, and did not experience any significant losses from SEMMX or any of the other bond oefs I owned at that period. I have not been back into bond oefs since that period. As I have stated several times over the years, retirement investing objectives is to achieve a total return of 4 to 6%, with the least amount of risk. Since I was able to do that with CDs and MMs for several years after 2020, I found no need to invest bond oefs. Now it is becoming very difficult to buy a CD that makes 4%, so I am looking at the least risky way of making at least 4%
@ PRESSmUP. You got that right. I was just telling my wife I dread going back to zero interest again and having to take risks to get 4%. Stagflation and the politicization of rates are inevitable.
And what low risk are we talking about? Interest rate risk? Sorta a function of duration. Or default risk? Sorta a function of quality of the bonds and the broader business climate. If one defined low risk as short duration and high quality that would lead to a short term treasury and or high investment grade fund no? I see suggestions of funds with higher yields and generally higher yields come with higher risk.
Yes, gotcha. So far, to me, and given where we are, it's still worth it to reach into Junk for higher yield. I've now heard from SEVERAL of the "expert" talking heads that bond defaults remain low, about 3%. I'm using MMkt to save for a dedicated goal coming up. That money is out of the Market, still earning a virtually risk-free 4+ percent.
I stand by my recommendation, WCPNX. It's not as utterly tame as some, but I found that it served as extra ballast that I don't need. Duration is 5.48 years. And as a core-plus fund, it is reaching, just a tad, in order to offer you and me a BIT more profit. Is 5.48 years not "the belly" of the curve? (Again: I'm already out of it.)
Like CLOs, these consumer ABSs take piles of loans (such as car loans or student loans), bundle them together, slice and dice, and then sell the tranches as securities. What are the securities backed by? The repayment streams of the underlying loans. Talk about making something (security) out of nothing (unsecured debt)!
Like other consumer ABSs, car loan ABSs are backed by the payments on the car loans, not by the cars themselves. At least with a car loan, its payment stream is in turn secured by an actual car. So there's security (the car) on the security (the payment stream) of the asset-backed security. Are we lost yet?
The payment streams of student loans (i.e. the security for a student loan ABS) are not in turn secured, unlike the car loans. But since student debt can no longer be discharged in bankruptcy, these loans might be considered safer (should I say more "secure"?) than other types of unsecured loans.
Securitized student loans are called SLABS (student loan asset backed securities). Federal student loans cannot be securitized; only private student loans can be included in SLABS.
Junkster: "Surprised no one has mentioned a fund widely held by the populace here NRDCX. Talk about low volatility with nary a down day"
I am not sure how many investors even know about this fund. It has only existed for about a year. I took a closer look at it and found it has over 40% of its portfolio in derivatives. It is from an excellent company but it has not really been challenged yet in a tough market. New funds from excellent companies are often great bargains.
@yogibearbull mentioned MYGAs is a prior post. MYGAs are functionally similar to CDs. You could earn a 5+% yield with very little risk (assuming AM Best ratings are accurate).
2-year MYGA, insurance company rated "A" by AM Best, yields 5.15% ($70K or $100K min. premiums).
3-year MYGA, insurance company rated "A-" by AM Best, yields 5.45% ($100K min. premium).
5-year MYGA, two insurance companies rated "B++" by AM Best, yield 5.80% and 5.81% respectively ($5K & $1K min. premiums).
Junkster: "Surprised no one has mentioned a fund widely held by the populace here NRDCX. Talk about low volatility with nary a down day"
I am not sure how many investors even know about this fund. It has only existed for about a year. I took a closer look at it and found it has over 40% of its portfolio in derivatives. It is from an excellent company but it has not really been challenged yet in a tough market. New funds from excellent companies are often great bargains.
Just about every investor here. Check the archives. It is a niche bond fund - Nordic high yield. Not doing any better than the average domestic junk fund just with less volatility. I am sure there are many happy holders here including me. Not the type of fund you are looking for though. My recommendation to you would be SCFZX or HOSIX. Doubtful though you will get 5% there next year if rates decline as projected, Then again, I wouldn’t buy any fund based on the recommendation of anyone on this board including me. You also need to be diversified by not putting it all in one bond fund as you are not a trader.
This year bonds haven’t been my thing with my focus and highest positioning shifting to emerging market equity funds.. @Sven deserves a shoutout as he was one of the first here to post about jumping into foreign and emerging market equity funds,
At least I understand the asset backing up securitised car loans. What's the asset behind student loans? Like CLOs, these consumer ABSs take piles of loans (such as car loans or student loans), bundle them together, slice and dice, and then sell the tranches as securities. What are the securities backed by? The repayment streams of the underlying loans. Talk about making something (security) out of nothing (unsecured debt)!
Oh great. Can I get some private credit with that please?
@Junkster You said from above post, "This year bonds haven’t been my thing with my focus and highest positioning shifting to emerging market equity funds." Would you mind mentioning how much leeway you're allowing these funds. They seem to bounce around more than bond funds.
Comments
"Collateralized loan obligations (CLOs) are structured securities that bundle a pool of lower-rated corporate loans and sell them to investors in tranches. These investments, managed by CLO managers, offer an opportunity for investors to gain exposure to higher-than-average returns by assuming default risk."
I am curious if any other posters have opinions about LCTRX and the use of CLOs.
Also I would like to retract a comment I made a while back about not touching HOBIX with a 10 ft pole. Not that I am recommending it for the purpose of this thread. Also as you alluded to, as the Fed fund rates declines so will the yields on a lot of funds mentioned in this thread. With your adversity to risk would just stick with money markets, CDs and Treasuries. I mean you already missed some big bull markets in many bond sectors over the course of the past several years. As for CLOs, they have been widely discussed here for some time now. Check the archives.
Surprised no one has mentioned a fund widely held by the populace here NRDCX. Talk about low volatility with nary a down day.
2008 = Collateralized debt obligations.
More than just substituting one word ("debt") for a seemingly synonymous one ("loan"), these are different types of instruments. Though in some significant ways (structured in tranches, built on top of lower grade debt), they are similar.
IMHO a significant distinction is in diversification across industries (not just geographic diversification as with CDOs). Ultimately, is CLO vs. CDO a distinction without a difference? You decide. I suggest looking beyond the similarity of names when deciding.
https://bluerock.com/contrasting-clos-to-cdos-and-cmbs/
https://www.vaneck.com/us/en/blogs/income-investing/clos-vs-cdos-understanding-the-difference/
OJ
At least I understand the asset backing up securitised car loans. What's the asset behind student loans?
And maybe everything is better with securitized debt since the last blow up. OTOH, we're talking about the industry that is trying to push everyone into private credit and equity.
It's hard to completely avoid the securitised trade. But at least with some of the older lower volatility funds like BBBMX, PYLMX, and FGUSX I can use MFO Premium to look at how they held up in 2008.
No I was not a "victim" of the SEMMX scam. I did own SEMMX for several years, but fortunately I was successful of trading out of SEMMX at the very early stages of its decline in 2020, and did not experience any significant losses from SEMMX or any of the other bond oefs I owned at that period. I have not been back into bond oefs since that period. As I have stated several times over the years, retirement investing objectives is to achieve a total return of 4 to 6%, with the least amount of risk. Since I was able to do that with CDs and MMs for several years after 2020, I found no need to invest bond oefs. Now it is becoming very difficult to buy a CD that makes 4%, so I am looking at the least risky way of making at least 4%
The higher end of that range will be difficult with a change of rates upcoming without taking on a bit of risk.
I look for the same distribution range, but also include some risk via well considered multi-strategy bond funds and international....most via ETFs.
Such as...JPST, JPIE, ICSH, NEAR, HFSI and JPIB. Also EADOX, AWF and JAAA if you're feeling frisky.
I stand by my recommendation, WCPNX. It's not as utterly tame as some, but I found that it served as extra ballast that I don't need. Duration is 5.48 years. And as a core-plus fund, it is reaching, just a tad, in order to offer you and me a BIT more profit. Is 5.48 years not "the belly" of the curve? (Again: I'm already out of it.)
"Consumer ABS are backed by cash flows from personal financial assets, such as student loans, credit card receivables, and auto loans."
https://www.guggenheiminvestments.com/perspectives/portfolio-strategy/asset-backed-securities-abs
Like CLOs, these consumer ABSs take piles of loans (such as car loans or student loans), bundle them together, slice and dice, and then sell the tranches as securities. What are the securities backed by? The repayment streams of the underlying loans. Talk about making something (security) out of nothing (unsecured debt)!
Like other consumer ABSs, car loan ABSs are backed by the payments on the car loans, not by the cars themselves. At least with a car loan, its payment stream is in turn secured by an actual car. So there's security (the car) on the security (the payment stream) of the asset-backed security. Are we lost yet?
The payment streams of student loans (i.e. the security for a student loan ABS) are not in turn secured, unlike the car loans. But since student debt can no longer be discharged in bankruptcy, these loans might be considered safer (should I say more "secure"?) than other types of unsecured loans.
Securitized student loans are called SLABS (student loan asset backed securities).
Federal student loans cannot be securitized; only private student loans can be included in SLABS.
https://kingsburyandpartners.ae/what-are-student-loan-asset-backed-securities-slabs/
I am not sure how many investors even know about this fund. It has only existed for about a year. I took a closer look at it and found it has over 40% of its portfolio in derivatives. It is from an excellent company but it has not really been challenged yet in a tough market. New funds from excellent companies are often great bargains.
MYGAs are functionally similar to CDs.
You could earn a 5+% yield with very little risk (assuming AM Best ratings are accurate).
2-year MYGA, insurance company rated "A" by AM Best, yields 5.15% ($70K or $100K min. premiums).
3-year MYGA, insurance company rated "A-" by AM Best, yields 5.45% ($100K min. premium).
5-year MYGA, two insurance companies rated "B++" by AM Best,
yield 5.80% and 5.81% respectively ($5K & $1K min. premiums).
https://www.annuityadvantage.com/annuity-rates-quotes/multi-year-guarantee-annuities/?years=3&sort=guarantee_period_yield&limit=20
This year bonds haven’t been my thing with my focus and highest positioning shifting to emerging market equity funds.. @Sven deserves a shoutout as he was one of the first here to post about jumping into foreign and emerging market equity funds,
@PRESSmUp. Great post above on bonds!
Would you mind mentioning how much leeway you're allowing these funds. They seem to bounce around more than bond funds.
Thanks for your time, Derf