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Rob Arnott in the cellar YTD

edited May 2013 in Fund Discussions
PIMCO All Asset All Authority PAUDX/PAUIX has managed to lose almost 1% ytd. Earlier this year Morningstar (which is usually too kind to funds IMHO) wrote that they thought it had gotten too big to be nimble & pointed out that, with its sister fund PAAIX, the Arnott funds account for more than 3/4 of the assets in PIMCO's Floating Rate and Emerging Markets Currency funds. I'm also uncomfortable with the opacity of these Arnott funds, not to mention 6 months of doing worse than money in the bank. Any thoughts?

Comments

  • edited May 2013
    Hmm, I thought I was the only one who noticed. :) You can find some insightful commentary by Mr. Arnott here:

    http://investments.pimco.com/Pages/Default.aspx

    Bottom line, PAUIX is a "go anywhere" fund and he does just that. I think this fund is best suited to the long term investor.
  • edited May 2013
    I'll be curious to hear Charles's take on the question, given his fine and extensive analysis of the All-Asset strategy which appeared in our May issue.

    Personally I tend to look a bit more than All Asset than at All Asset All Authority, just because I'm not a great fan of leverage. My general observations are that (1) All Asset often posts returns dramatically out of step with its peers - it's not unusual to see if lead or trail its peers by 300-400 bps in a single quarter, (2) it's not unusual for the fund to lag its peers for two or three consecutive quarters, (3) the fund has generally outperformed dramatically in quarters where its peers are in the red - which hasn't occurred since 2Q2012, and (4) the fund generally captures 75-85% of the market's upside and lags noticeably during meltups.

    All Asset is up 2%, All Asset All Authority is down 1%, YTD on "D" shares through 5/24. Presumably that's from applying leverage in the wrong place, at least from the prospect of short-term returns. But, as Bitzer notes, it's not designed to be a short-term holding so I'm not sure that it's meaningful to judge it on short-term results unless you see something troubling which is leading to those results. The danged thing certainly is huge (some would say "bloated") and hence not nimble (some would say "waddling") but it's not immediately clear to me what nimble action Arnott should have taken that he didn't or couldn't.

    Just pondering on a gray day.

    David
  • Arnott is using the PIMCO Short Strategy fund in his portfolio. M* has his portfolio at about -17% equities, which is enough to drop the funds performance around -2% YTD.

    He's either early on the bet and it could work out for him, or it could be subpar returns for the remainder of the year.
  • In PAUIX, Arnott holds what has appeared to be a near perma-short on U.S. stocks, while investing significantly in EM stocks and bonds. That particular combo has not been a winner this year; not to say it won't be in the future.

    Imho, Arnott no longer has the same "go anywhere" ability he's had in the past: he just has too much in AUM for a fund of the sponsoring family's funds, which typically transition to being huggers of a 'neutral' position as they grow to large AUM.

  • PAUIX is a fund or funds and I don't understand how he can buy/sell as he wishes when other managers are subject to his trading.
  • I own PGMDX, PAUDX in a small IRA. I plan to hold "forever". I also bought PDRMX in my taxable account. I'm holding right now, but not adding. On bad days, I will.
  • I looked at PAUDX and having seen much of performance leveraged exposure to bonds and derivatives decided not to invest on it. I also find Rob Arnott mixing his political views too much into his investment policy.

    I do invest in PONDX which is one component of PAUDX. In fact, PONDX or rather its institutional version PIMIX has contributed a lot to PAUDX.

    I personally like the simple and successful strategy of VWINX or GLRBX.
  • As I see it, PAUIX has three strikes against it: the fund is bloated ($36B AUM), expensive (real expense ratio 1.65%) and lagging. Although PIMCO describes this as a world allocation fund able to be exposed to global equities, during the darkest days of the March 2009 market lows, PAUIX only had about a 10% equity position. Also, with such huge AUM, the fund is far less nimble than it used to be and is unable to quickly move between the PIMCO funds it owns without adversely affecting the performance of the underlying funds. Clearly, this fund should have been closed to new investors many billions ago which indicates poor fund stewardship.

    I sold my position in PAUIX over a year ago as there are more attractive options. Among world allocation funds with an equity bias, I continue to like TIBIX, PQIIX, SGIIX/SGENX.lw, LSWWX and TZINX. Among world allocation funds with a fixed income bias, I continue to like PGDIX and JNBSX.

    Kevin



  • Reply to @kevindow: I think PAUIX was intended to also provide protection to the downside which it did quite well in the 2008-2009 period and since then. I do own TIBIX and SGENX. Funds that are balanced and hold bonds should help protect.
  • Reply to @ron: Your point is well taken, but when I look at my relatively small PAUIX exposure I have to wonder if it's worth it. Even if it did well vs the other stuff, how big a percentage would be necessary in PAUIX to make it worth while? I'm thinking of getting rid of the PAUIX and adding that to the PONDX pile. Also holding on to major exposure in balanced funds, as you mention.
  • Reply to @Old_Joe: I believe one of the Zurich Axioms is "Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either." I try to remember this one and purge my portfolio of low percentage, low conviction (these often go together) investments. Now -- easy advice to give. Do I stay this disciplined always? Hell, no. But it's a goal.
  • Reply to @GregFromBoston: Thanks- that's pretty much what I'm thinking too.
  • edited June 2013
    Ha! Mr. Arnott is in good company this year...with all managers that have been avoiding equities deemed over-valued.

    To Investor's point, let's trust that his "3-D Hurricane" thesis, where he warns against US debt, deficit, and aging demographics, remains an analytical justification for his tactical investment allocations and does not become a stubborn campaign about economic policy.

    Mr. Arnott has been at this a pretty long time and his success, as measured by AUM, comes in spite of his stated objective to be an alternative "Third Pillar" vehicle to pure equity/bond mix.

    PAAIX has only infrequently been US equity heavy. Pretty much missed the current bull completely. Here is allocation mix since 2002:

    image

    The approach:

    image

    As David points out, PAAIX is only modestly correlated with market. Its secondary benchmark is consumer price index +5%.

    NumberGal already noted its poor short-term performance:

    image

    But long-term, hard not to be impressed:

    image

    As for the PIMCO house...under siege lately. A test for sure. I wonder if it's missing the influence of Mr. McCulley.
  • Sorry, who is McCullley?
  • edited June 2013
    Reply to @VintageFreak: http://en.wikipedia.org/wiki/Paul_McCulley

    After he retired from PIMCO, his look has changed as well. His hair may have turned silver but the roots are strong. I envy him even though I am much younger.

    imageimageimageimage

    Some of his recent Wealthtrack appearances:
    2011:


    2012:


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