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Noted that in the past few months, my balanced allocation funds (FPACX and OAKBX) have dropped a little more than the market. Aren't they supposed to offer some downside protection through diversification? I know, I know, few months is not long term, but still curious.
If you take the S&P 500 index (SPX) to be "the market," at the time of this writing, it has lost more than either FPACX or OAKBX over the periods of 1 week, 1 month, 3 months, and 6 months, per my reading of results on StockCharts.com. For example, over 1 month, FPACX and OAKBX are down 5.39% and 5.18%, respectively, whereas SPX is down 9.35%; over 3 months, FPACX and OAKBX are down 7.16% and 7.74%, respectively, and SPX is down 10.47%.
I have been very disappointed in FPACX which I bought specifically because it should have been a very defensive holding. M* shows it holding 35% cash plus %10% bonds and I don't understand how it could be down so much with such a high cash position.
Percentage allocation to shares can be very misleading since funds can load up on high beta stocks while showing lower allocation. Even the bond allocation can contain debt that is correlated with equities. They get exposed when risk on tide goes out but do well relative to peers in bull markets which is the real game mutual funds play. They are in asset gathering business.
Large funds cannot reposition fast enough to capitalize on fast downturns like this unless they had small beta exposure even in rising markets in which case they would not be large funds for long! Who said a mutual fund manager's life is easy?
Since Dec 1, SPX is down ~10%, GLRBX down half that, and everyone else mentioned is in between, FPACX and OAKBX worse than PRWCX and MAPOX. (DSENX and PONDX 50-50, which is what I am trending toward for say 3/4 of my holdings this year and after, is best of all, down ~4%.)
@joe I couldn't agree more. How FPACX has held ~35% in cash for more than a year, plus a smattering of bonds, and still managed to do so poorly is beyond me. I think I'm still a long-term believer, but I have many more doubts than I used to.
Seems to me to tend to the slightly less risky, based on my uninformed historical lookbacks and comparisons. (How's that for handwaving?) Its past performance looks not bad when it comes to slumps (bond portion w Gundlach sauce), and its general outperformance (less so vs CAPE etf, which you might want to look at) at every increment since inception is interesting. 50-50 w PONDX looks similarly appealing when you backtest it, though I would probably do 60-40 since DSENX has this special bondish component.
I have held DSENX for more than a year, but your reference to CAPE got me to look at that ETN (not an ETF). It's done considerably better than the OEF and expenses are about half of DSENX. Problem is very low trading volume and a price premium. Not sure I fully understand the risks in the ETN structure. Anyone have a thought on that?
Your point is reasonable and I suppose the PR people at the funds would like to have us believe that. However, truth is there are way too many variables affecting these funds at different times to project how they will perform relative to equities on any given day.
Some balanced funds are simply run more aggressively and come closer to stock funds in both volatility and potential return. Also, managers can change a fund's emphasis without you and I realizing it hoping to protect assets or boost return. Moving to longer dated Treasuries for example. Or starting a new position in a company. OAKBX has been loading up on GM stock for about a year thinking the safety probes, suits, etc, have depressed it below true value. On days when GM is unfavorably mentioned in the press (and the stock suffers) OAKBX swoons. The fund has also traditionally had a foot in the energy market which of course isn't helping it.
My balanced funds today: PRWCX -.70, OAKBX -.70, DODBX -.90 . Compare DODBX to it's all-equity sister DODGX which lost about 1.3% ---
I think you may have also highlighted a second issue which is that with bond yields as low as they are today, they do not offer the degree of protection one might expect within a "balanced" portfolio. In fact, Seems to me that both David Snowball and Ed Studzinski have mentioned this second point in their commentaries over the past several years.
One past outstanding fund is/was VILLX. However, apparently the equity area of this fund moved more and more into the sm/mid cap area over the past 18 months or so; and the this fund has taken a beating. The fund used to run among the top 5% of its peers during a several year period......no longer. One may suppose for true word meanings that a fund is as balanced as the manager and/or owner agree upon. True balance is 50/50, at least when working with a lawn mower blade. Most here have a mix of holdings that are "balanced" to their style or liking, yes?
Why I am able to hold funds like fpacx is because I don't reinvest dividends and when folks start worrying, I look for entry point to add.
I am probably in the minority here who thinks, getting hoodwinked by the argument of compunding returns and never taking any money off the table, keeping reinvesting distributions, and then experiencing bad markets leads to bad decisions. Better to take some paper gains off the table.
So many funds made sizeable distributions last year. All that money for me is sitting in cash waiting to be deployed back, instead of being down additional 10%. Not to mention I don't need to hire a CPA come tax time
Seems to me to tend to the slightly less risky, based on my uninformed historical lookbacks and comparisons. (How's that for handwaving?) Its past performance looks not bad when it comes to slumps (bond portion w Gundlach sauce), and its general outperformance (less so vs CAPE etf, which you might want to look at) at every increment since inception is interesting. 50-50 w PONDX looks similarly appealing when you backtest it, though I would probably do 60-40 since DSENX has this special bondish component.
David, is there any way to tell which sectors it's invested in, except fairly distantly in the rearview mirror? (For now, the only source I can find is a couple of lines of text in the 9/30 report, which was apparently out two months after quarter end. And you can't really tell anything by looking at portfolio holdings.)
M* shows the 1y up/down capture as 110/93. If those figures are indicative, it's been coming in better on both reward and risk than the index, but so far at least not what you'd call a defensive fund, if that's what anyone's looking for.
That etn CAPE: the tiny, tiny, tiny trading volume is an absolute disqualifier for me. I once looked into etn structure, but don't recall much about it except it had risks of its own - I think issuer risk is one of them.
@AndyJ Yes sir, there is a way to know. You go to the horsey's mouth, click the statistics tab, then--- as things are currently configured--- you have to scroll all....the....way....down to the bottom, where you will find the allocation. I think they refresh it about 1-2 wks after the end of every month. http://www.doublelinefunds.com/funds/shiller/statistics.html
AJ, you do understand the method, right?, of regularly rotating into lower valuations (general). No, I am not thinking of it as defensive, exactly, but no longer know what that means in any case, really, since some I have been in the past have not really held up as proposed. With it and PONDX in some combo I hope most of the time to have the best of all worlds, he said, whistling, tralala. The last decade has taught me about decrease of decorrelation and weakening of diversification, so my interest in smallcaps and international (and of course in good-quality bonds of all sorts) is way less than it used to be.
I did initiate a small position in CAPE on Thursday instead of adding to my DSENX. As an ETN, it throws off no income or capital gains. Small volume means it can't be unloaded without taking a hit.
Comments
PRWCX 3 months: down -4.14%
I dunno how that compares?
Positioning:
Gross
exposure to equities
is circa 60%
and net equity exposure is
approximately 56%
Corporate Bonds
increased
to 3.9%
Cash is approximately 39%.
Outlook:
The opportunity set continues to improve marginally
.
We are
researching
various areas
of
the market,
including
oil and gas
and
MLPs,
retail, and industrials
http://www.fpafunds.com/docs/fpa-crescent-fund/q4-2015-crescent-update150F8E52283E.pdf?sfvrsn=2
Large funds cannot reposition fast enough to capitalize on fast downturns like this unless they had small beta exposure even in rising markets in which case they would not be large funds for long! Who said a mutual fund manager's life is easy?
(DSENX and PONDX 50-50, which is what I am trending toward for say 3/4 of my holdings this year and after, is best of all, down ~4%.)
Your point is reasonable and I suppose the PR people at the funds would like to have us believe that.
However, truth is there are way too many variables affecting these funds at different times to project how they will perform relative to equities on any given day.
Some balanced funds are simply run more aggressively and come closer to stock funds in both volatility and potential return. Also, managers can change a fund's emphasis without you and I realizing it hoping to protect assets or boost return. Moving to longer dated Treasuries for example. Or starting a new position in a company. OAKBX has been loading up on GM stock for about a year thinking the safety probes, suits, etc, have depressed it below true value. On days when GM is unfavorably mentioned in the press (and the stock suffers) OAKBX swoons. The fund has also traditionally had a foot in the energy market which of course isn't helping it.
My balanced funds today: PRWCX -.70, OAKBX -.70, DODBX -.90 . Compare DODBX to it's all-equity sister DODGX which lost about 1.3%
---
I think you may have also highlighted a second issue which is that with bond yields as low as they are today, they do not offer the degree of protection one might expect within a "balanced" portfolio. In fact, Seems to me that both David Snowball and Ed Studzinski have mentioned this second point in their commentaries over the past several years.
Regards
One past outstanding fund is/was VILLX. However, apparently the equity area of this fund moved more and more into the sm/mid cap area over the past 18 months or so; and the this fund has taken a beating. The fund used to run among the top 5% of its peers during a several year period......no longer.
One may suppose for true word meanings that a fund is as balanced as the manager and/or owner agree upon. True balance is 50/50, at least when working with a lawn mower blade.
Most here have a mix of holdings that are "balanced" to their style or liking, yes?
I am probably in the minority here who thinks, getting hoodwinked by the argument of compunding returns and never taking any money off the table, keeping reinvesting distributions, and then experiencing bad markets leads to bad decisions. Better to take some paper gains off the table.
So many funds made sizeable distributions last year. All that money for me is sitting in cash waiting to be deployed back, instead of being down additional 10%. Not to mention I don't need to hire a CPA come tax time
M* shows the 1y up/down capture as 110/93. If those figures are indicative, it's been coming in better on both reward and risk than the index, but so far at least not what you'd call a defensive fund, if that's what anyone's looking for.
That etn CAPE: the tiny, tiny, tiny trading volume is an absolute disqualifier for me. I once looked into etn structure, but don't recall much about it except it had risks of its own - I think issuer risk is one of them.
http://www.doublelinefunds.com/funds/shiller/statistics.html
No, I am not thinking of it as defensive, exactly, but no longer know what that means in any case, really, since some I have been in the past have not really held up as proposed. With it and PONDX in some combo I hope most of the time to have the best of all worlds, he said, whistling, tralala. The last decade has taught me about decrease of decorrelation and weakening of diversification, so my interest in smallcaps and international (and of course in good-quality bonds of all sorts) is way less than it used to be.