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.
I've owned this fund for a few months now and I haven't been able to get an understanding of the yield. It's all over the place. Is there a way to determine what the expected yield might be moving forward? I figured the first few months would be erratic but it should start to settle down soon?
Good question, I've noticed the same. The yield on RPHYX is all over the map as well and I've had that for the past 2 years. I look at is as a little surprise every month.
The yield is strongly affected by asset growth. A few months ago the fund was small. It invested cash into securities. Those securities may be generating a large income stream, but that stream is now being divided among many more shareholders. Morty argues that means that you see more low-tax capital gains than high tax income gains, so long as the investor base continues to grow.
If you haven't done so, you might listen to his explanation of yield in the conference call.
Perhaps someone could tell me if this makes any sense, because I'm hardly expert in such things:
According to Morningstar, RSIVX has an Average Weighted Coupon = 9.91 and an Average Weighted Price = 104.26. The fund also holds 71.82% in bonds and mostly cash for the rest. The fund's expense ratio is 1.25%. So can we get a decent estimate of the yield towards which it's heading with:
9.91/104.26 = 9.5 for the bonds' yield.
9.5% x .7182 = 6.82% as the fund's yield before expenses (assuming 0% yield on the cash)
6.82% - 1.25% = 5.57% for a net yield after expenses.
I suppose that doesn't take into account any trading expenses nor whatever the 'Other' category that it holds might yield, but is that calculation at all reasonable? I know that would be just a snapshot of a dynamic system since the fund keeps on buying new bonds and the old ones eventually mature, but perhaps this is a useful calculation?
Reply to @David_Snowball: Hi David- in addition to what you have stated, investors may also want to think about how such a fund works. Positions do regularly roll off, allowing the fund to make distributions, but its not a CD where every month your account shows payment of a contractual interest rate. If an investor needs or wants that, it exists in the marketplace. A quick check at BankRate shows a 5 year CD pays about 1.5%. Cheers, Mark
Reply to @Vert: Hi Vert- A "dynamic system" is a good way to think of it. Since the fund is intended to have a duration of three to four years, every month it is required to take cash from maturing positions and reinvest it into new high yielding instruments. A ton of turnover ($$$) at that duration structure and a ton of work. The cash is a byproduct and Mr. Sherman must reinvest it continually to get his desired returns for the investor of 6-8%. As the fund will have a significant overlap with RPHYX, I would expect that "true 0% cash" will be minimized when the fund is fully operational. Mr. Sherman does not impress me as a person who would tolerate such dead weight.
Reply to @MarkM: I don't think that assessment is correct. If positions are held on average for 3-4 years, then on average turnover will range 25-33%, far lower than many if not most bond funds. Cash management strategies (i.e. Treasury bills, commercial paper) that Mr. Sherman may not employ could potentially run that up, as could substantial asset growth, but if bonds are held to maturity then turnover should be low.
As a second point, a substantial cash may be required assuming many of the holdings are illiquid. As an opened fund with illiquid holdings, if he doesn't keep cash to maintain liquidity, the fund could meet substantial challenges were there to be distress
Dear willmatt72: The fund is only four months old, and if I'm correct has yet to declare a dividend. When that happens one will be able to estimate the funds annual yield Regards, Ted
Reply to @NickF: At the time of the conference call, 28% of the fund overlapped with RPHYX. The duration of that fund was about 90 days I believe David said at the end of December. A lot of turnover at the short end. David said his sweet spot was 4-5 years maturity as that was where he could get a real yield and benefit from the roll down of the curve. Not much turnover at that end.
Reply to @Ted: They've been paying monthly dividends which generally have been rising (one exception, the second declaration, I believe). If you multiply the most recent monthly dividend (for January) by 12 you'll get close to 5% on the year, but the dividends have not been at all consistent thus far.
Reply to @David_Snowball: Hi David - I did listen to the conference call, thank you. However, I didn't understand everything in the interview. I'm sure others were in the same boat. Based on my interpretation of your above statement, it sounds like investors should not expect a yield range or anything that should be relied upon for income needs. Is that how you see it?
Comments
If you haven't done so, you might listen to his explanation of yield in the conference call.
For what that's worth,
David
According to Morningstar, RSIVX has an Average Weighted Coupon = 9.91 and an Average Weighted Price = 104.26. The fund also holds 71.82% in bonds and mostly cash for the rest. The fund's expense ratio is 1.25%. So can we get a decent estimate of the yield towards which it's heading with:
9.91/104.26 = 9.5 for the bonds' yield.
9.5% x .7182 = 6.82% as the fund's yield before expenses (assuming 0% yield on the cash)
6.82% - 1.25% = 5.57% for a net yield after expenses.
I suppose that doesn't take into account any trading expenses nor whatever the 'Other' category that it holds might yield, but is that calculation at all reasonable? I know that would be just a snapshot of a dynamic system since the fund keeps on buying new bonds and the old ones eventually mature, but perhaps this is a useful calculation?
As a second point, a substantial cash may be required assuming many of the holdings are illiquid. As an opened fund with illiquid holdings, if he doesn't keep cash to maintain liquidity, the fund could meet substantial challenges were there to be distress
Regards,
Ted
David said his sweet spot was 4-5 years maturity as that was where he could get a real yield and benefit from the roll down of the curve. Not much turnover at that end.
The portfolio has a barbell shape.
Regards,
Mark
Regards,
Ted
Gains Distributions RSIVX
Distribution
Total
01/31/2014 10.21 0.0000 0.0000 0.0000 0.0423 0.0423
12/30/2013 10.18 0.0000 0.0000 0.0000 0.0321 0.0321
12/12/2013 10.18 0.0000 0.0004 0.0000 0.0000 0.0004
11/29/2013 10.15 0.0000 0.0000 0.0000 0.0122 0.0122
10/31/2013 10.08 0.0000 0.0000 0.0000 0.0230 0.0230
Regards,
Ted