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As interest rates rise, what are your "Turtle Shell" funds?

beebee
edited August 2013 in Fund Discussions
I would like to think that a turtle has figured out how to minimize most risks. It calculates its moves, it's acutely aware of its surroundings, and when danger lurks it retreats into the safety of its shell. A turtle is smart enough to know when to poke it's head out, when to walk around prospecting, and when to temporarily close up shop.

With this in mind, I turn to fund investments. Having a collection of funds that act like a "turtle's shell" (minimizing downside risk) seem harder to identify then identifying funds that "walk around prospecting" (move with the market). A successful investor needs to do both, but having a "turtle shell" fund seems to me a good first objective.

If I understand (Maximum Draw Down %) on the charts Charles has so painstakenly put together I believe what I am after here are funds that exhibit a low (Max DD %) quality. Many of these low (Max DD %) funds seem to fall into the fix income category and my fear is that many may not be positioned properly as interest rates rise.

Anyway, looking for a few good "turtle shell" funds that are properly positioned for rising interest rates.

Your thoughts are always appreciated.
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Comments

  • (NFRIX) one of those funds that is now available LW and NTF at Fidelity. Ticker is (NFRAX).

    Art
  • I continue to own RRPSX.
  • OSTIX, SUBYX
  • in cef space: pdi, bgh -- their NAVs were up on days of interest rate jumps... you need to be confortable with premium/discounts, leverage and resulting volatility, however
  • Reply to @scott:

    I hope this was a recent purchase for you...up 18% over the last three months after nearly down 70%. What exactly is trading inverse debt?
  • edited August 2013
    Reply to @bee: I've traded it a few times (no minimum, no max holding period) in the last couple of years - sometimes good, sometimes not. However, earlier in this year I started a small position in it again for a somewhat longer-term period. Still, may continue to trade in/out of it as I don't think interest rates are going much higher anytime soon (but who knows - I didn't think they'd rise as/when they did.) Inverse debt is short debt.
  • beebee
    edited August 2013
    Reply to @scott:

    Short debt verses long debt...good call over this last year. I charted your fund (short debt) compared the BTTRX (Zero Coupon Long Debt) ...the two charts are 10 yr and 1 yr...very much mirror images of one another as well as switching positions.


    10 yr:
    image
    1 yr:
    image
  • edited August 2013
    Reply to @fundalarm:

    PDI is more like a hare than a turtle. Have you seen it's three-month chart?

    Price = -14.62% vs. VBMFX = -3.35%

    Not my definition of a turtle fund. It looks like a hare on the downside as well.

    Mike_E
  • Reply to @Junkster: Very nice performance. Does it concern you that this fund has a large (25%) cash position?
  • edited August 2013
    Hi bee. I think FPNIX makes a good turtle...it's also a great owl=).

    Here's how it handled recent interest-rate hikes:

    image

    Here's how it handled 2008 financial collapse:

    image

    Here are the performance/risk numbers:

    image

    And, Steven Goldberg likes it! Here's recent thread: A Great Place to Stash Your Cash
  • Reply to @Charles:
    Yikes, Charles. FPNIX has a 3.5% load at Fido, plus the .57 ER and short term redemption fee. Pretty much a wash against plain old BND with its .10 ER; although with a higher losing % YTD.

    Thank you for all of your time and efforts.

    Catch
  • edited August 2013
    Reply to @catch22: Ouch. Are you sure? M* shows No Load and same at Schwab. I think loads today are indefensible.

    image

    image
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  • edited August 2013
    Howdy Charles,

    This is the Fido page link for FPNIX. Scroll down a bit for the expenses, below the "Details" section. 'Course, as we all discover, pricing varies among the big houses for funds outside of their own mix. I don't find another share class for this fund; nor is there an indication at Fido about a load waiver; which I have seen with other funds at this same type page.

    UPDATE note: FPA home page shows no load for this fund. I did find one other site that also shows the 3.5% load. Obviously, the Fido and other site info is incorrect. I will contact Fido about this.
  • Reply to @SlowLane: Because I am leery of anything bond related, I am hoping its 25% cash cushion will mitigate any downside while at the same time allowing me to exit if need be before any real damage to my account. These bank loans funds have had huge inflows this year and at some point, distant or otherwise, that always ends badly.
  • edited August 2013
    Reply to @catch22: If Fido really charges a load for this fund, it will be one more example that makes me question their friendliness toward shareholders. Please let us know either way. Thanks catch.
  • beebee
    edited August 2013
    Reply to @Maurice:
    Your description sounds also a little bit like this artic animal:

    "No other animal has the defense method of musk oxen. When danger
    threatens they do not run away. Instead, a herd of twenty to forty
    individuals backs into a rough circle facing outward with the calves in
    the center or under their mother's bellies. This ring of horned heads
    can defy such natural enemies as the arctic wolf and the grizzly bear.
    From time to time a bull dashes out to do battle, then returns to the
    circle. He is exceedingly nimble. A single sweep of his horns can
    cripple or kill a wolf, dog or Eskimo hunter armed with a spear."
    image
  • Reply to @catch22: Good call Charles... this is also available to me through USAA brokerage NTF.
  • Reply to @Junkster: Thanks Junkster...a percentage of cash definitely is another option to active investments and a hedge against a market down turn. Are you seeing any other opportunities in bonds...HY Corporate, munis, EM bonds? Dan Fuss explained the strategy in the 80's of laddering bonds much like CDs are laddered.
  • Morn'in Charles,

    I requested to Fido, to provide to me; the correct data regarding the 3.5% load indicated at their fund summary review page for FPNIX. I am sure this is a data entry error; as Fido does not add loads to funds, and as you are aware, has been working to offer more outside vendor choices with loads waived.

    You noted in a post below: " If Fido really charges a load for this fund, it will be one more example that makes me question their friendliness toward shareholders." Did you have a bad experience with Fidelity; or know someone who has?

    Okay, back to work here; for me.

    Catch
  • edited August 2013
    Reply to @catch22: Nope. Just been growing a little wary of the shop because of reports recently. Like I've posted before:

    David's July commentary, under sub heading "Fidelity cries out: Run away!"

    Here are few excerpts:
    Fidelity’s signaling the fact that they can no longer afford two Euro-centered funds. Why would that be the case?

    I can only imagine three possibilities:

    1. Fidelity no longer finds with a mere $400 million in AUM viable, so the Cap App fund has to go.

    2. Fidelity doesn’t think there’s room for (or need for) more than one European stock strategy. There are 83 distinct U.S.-focused strategies in the Fidelity family, but who’d need more than one for Europe?

    3. Fidelity can no longer find managers capable of performing well enough to be worth the effort.
    And...
    In April of 2007, Fidelity tried to merge Nordic into Europe, but its shareholders refused to allow it...The nature of those “changes” was not clear and shareholders were unimpressed.

    It is clear that Fidelity has a personnel problem.

    I’ve had trouble finding attractive new funds from Fidelity for years now.
    Then there's M* stewardship rating of Fidelity:

    image

    Citing...
    Fidelity's average manager tenure remains very weak relative to its largest competitors.

    Fidelity could also do more to push managers to invest in the funds they oversee. The managers' level of investment is average relative to competitors.
    Good luck today with chores. We're actually getting ready for camper trip up CA coast, through redwoods, then into OR, where we've rented a house on the coast. Have never been to Oregon before (Portlandia is closet we've come=)) so really looking forward to trip.
  • I think you can "Turtle Shell" funds in any category. And I would measure the that 2 step forward, 1 step back approach by the M* upside downside statistics. So, for me, FPACX is a pretty good Turtle. In it's category, MACSX is excellent. YAFFX as a LB fund is also a good 2 step forward, 1 step back fund. These are funds you own long term. Not just when you feel defensive.
  • A few comments on turtle funds, and more on Fidelity ...

    People likely know that I've been touting FPNIX as a very conservative bond fund - one which I've had my eye on for years but could never figure out how to get around the load ('till now). So I completely agree with Charles in his recommendation. On the other hand, I disagree with suggestions to use bank loan funds; in part because they flunk one of Charles' metrics - look at their 2008 performance; in part because they won't float (because of floors on their interest rates - see my previous posts explaining this).

    Fidelity's brokerage web site has never reported its third party fund offerings correctly. It has posted wrong min balances (it took months, if not years, for Fidelity to show lower mins for IRAs after they dropped the IRA min en masse), wrong info on whether funds were available for auto invest (i.e. whether you could add to TF funds for $5 instead of $75), wrong info on loads (the problem here), and so on. And Fidelity doesn't make corrections, even when you point it out by phone, by email, etc.

    But if you have an account, you can attempt (without even submitting) a trial trade - once you enter a ticker, the system will tell you the real min that the Fidelity requires and the real load.

    Shareholder friendliness is in the eye of the beholder. Number one for me is the ability to control what I buy and sell (which lots, what cost method(s), when RMDs are paid, from which funds, etc.) From what I've seen, Fidelity is unsurpassed here.

    They provide access to a fair number of institutional class shares. Not as many as, say Schwab, but with the $5 fee for additions, Fidelity comes out cheaper for what they do offer. Their cost tracking on individual bonds (e.g. adjusting basis for interest that has accreted) is better than I have seen elsewhere, including full service brokerages.

    On the other hand, the mutual side of the house (which is not the focus of this thead on turtle funds) is another matter. Nevertheless, I do wonder whether people would be complaining so loudly about Fidelity's "friendliness" if it had a good stable of funds. Regarding the merging of the European funds - IMHO Fidelity is just acknowledging the de facto merger five years ago when they assigned the same manager to both funds. Performance has been similar for years. The time to criticize the merger was years ago.

    Do people care that Fidelity makes performance adjustments to the fees it charges (the vast majority of funds don't), or that its fees are lower than most large families aside from Vanguard and American Funds? On the plus side, they do close funds; on the minus side, they close them infrequently, late and with early warning. On the plus side, they're much easier to deal with than, say, Vanguard; on the minus side, this facilitates attracting hot money.

    All in all, I'm not impressed with Fidelity's fund offerings (like David). But that's different from saying they're not a shareholder friendly fund family - lots of boutiques have nothing that interests me, but are still considered very friendly. (For the record, I'm not saying that they are unfriendly to Fidelity fund owners, but I agree that on the fund side, they don't go out of their way to be friendly, either - M*'s C grade is a fair summary.)
  • Reply to @Charles: Have fun on the coast. Don't miss the Tall Trees Grove in Redwood NP -- a short walk off a gravel road from the highway into the hills.
  • edited August 2013
    Reply to @catch22: You are correct about the load. On April 1, 2013, FPA did away with the loads on all of their funds (only Crescent did not have a load).

    I own FPACX and FPPTX with FPA directly. Bought FPPTX before it closed a second time with the load many years ago when Bob Rodriguez managed it.

    Here is the announcement I posted earlier:

    http://www.mutualfundobserver.com/discussions-3/#/discussion/5680/fpa-funds-eliminate-front-end-sales-charges


  • edited August 2013
    Reply to @msf: Good points msf. I too noticed that every single fund in the Bank Loan category that lived though the 2008 decline drew down 15% or more, which I consider a real painful threshold for most investors. Every one:

    image
    image

    OK on Fido. Hey, I'm disappointed that Whitebox continues to charge a load for most of its share classes. They really should rethink this arcane fee policy.
  • Art
    edited August 2013
    Reply to @Charles:

    Whitebox funds (WBMRX) and (WBLRX) are no load and NTF at Fidelity and Vanguard w/low minimum amounts to open.

    Art
  • Reply to @Art: Thanks. Good to hear. Only WB institutional shares are no load at Schwab.
  • Reply to @Charles: FPA New Income looks to me like better to be in cash and wait.
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