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The Steep Price Of Bond Flight

TedTed
edited November 2016 in Fund Discussions
FYI: (This is a follow-up article)
A nightmare scenario has haunted asset managers for years: What if the flood of cash that's poured into debt mutual funds since 2008 suddenly reverses, leaving a field of financial-market carnage behind?
Regards,
Ted
https://www.bloomberg.com/gadfly/articles/2016-10-18/mutual-funds-get-surge-pricing-for-costly-bond-flight

Comments

  • Let the asset managers go cryin to the Fed. They created the bubble.
  • edited October 2016
    "In theory, this should prevent mutual-fund investors from racing to the exits all at once at the first sign of trouble ..."

    Ha! What do they think we are? A bunch of sheep?
  • edited October 2016
    My comment has to do more with accommdating the retail investor more than big money investors and with this I'm thinking that the long term retail investor should be able to withdraw money from most any fund, at their will, without penalty once a holding period has been satisfied. The issue as I see it is big money moving in and out of funds so to speak with their "hot money." Perhaps, a lock up period is warranted for new money coming into funds and once the lock up period has been satisfied then withdrawals can be taken at the retail investor's will while big money would have to give sufficient notice before making large withdrawals and perhaps get paid with securities rather than cash. In this way, fund managers do not get blindsided with large redemptions without fair notice.

    One of the reasons that I own the number of mutual funds within my portfolio that I do (currently forty seven) is the it much easier to get $5,000 to $25,000 perhaps even $50,000 out in cash than it is to get half a million out and possibly get paid inkind with securities. I believe, payment inkind has happen to a few that post on the board from time-to-time. So for those that have large sums invested in only a few funds might begin to ponder a good withdrawl strategy or begin to think about spreading it around among a number of funds.
  • The question I would have is, how high would the swing pricing have to be in order to prevent people from panicking? When a fire breaks out, is it the best strategy to lock the doors until everyone calms down?

    Nick de Peyster
    http://undervaluedstocks.info
  • edited October 2016
    Old_Skeet said:

    One of the reasons that I own the number of mutual funds within my portfolio that I do (currently forty seven) ... (emphasis mine)

    Nice number 'Ol Skeet. 47 turns out to be both a safe prime an Einstein prime and is of considerable importance to mathematicians, astronomers, film makers, and many others.


    --- Forty-seven has been the favorite number of Pomona College, California, USA, since 1964. A mathematical proof, written in 1964 by Professor Donald Bentley, supposedly demonstrates that all numbers are equal to 47.

    --- The 47-year cycle of Mars: after 47 years - 22 synodic periods of 780 days each - Mars returns to the same position among the stars and is in the same relationship to the Earth and Sun. The ancient Mesopotamians discovered this cycle.

    --- In the 2009 film Star Trek, the Enterprise was built in Sector 47 of the Riverside Shipyards, and 47 Klingon ships are said to have been destroyed by Nero's ship, the Narada.

    --- During the 2012 election, Republican candidate Mitt Romney made a comment claiming that 47 percent of Americans do not pay any income tax.


    https://en.m.wikipedia.org/wiki/47_ (On line 1, click related link. "This article is about the year 47. For the number, see 47 (number).")
  • This is what I came up with, sorry !
    47 (forty-seven) is the natural number following 46 and preceding 48.
    Derf
  • edited October 2016
    Hi @hank and @Derf,

    Thanks for making comment on the number 47 as indeed as it turns out to be a most interesting number and when divided into 100 provides the quotient of 2.12765.

    The number 47 is said to be contained in Biblical Law.

    Something to think on? Yes.

    Have a great day!

    Skeet
  • Don't overlook the fascinating coincidence that when multiplied by 1 it also equals 47!
  • Hi @Old_Joe ...

    47X1=47

    Make that a product of 47.

    Skeet
  • edited October 2016
    Derf said:

    This is what I came up with, sorry !
    47 (forty-seven) is the natural number following 46 and preceding 48.
    Derf

    @Derf - I'm afraid you've given up too easily. Sometimes in looking at links one must apply the Think Method for them to make any sense. Regards, hank

  • Meanwhile back in the real world several categories of bond funds have double digit gains in 2016. Flight occurs way after the fact and prices have already been in a pronounced downtrend. That is what occurred with the Third Avenue High Yield fund and Sequoia Fund to name just a recent few.
  • edited October 2016
    @Junkster Loans?
    Many HY funds continue touching Ytd and multi-year highs.Here's Sept 30th commentary from two such funds.
    ARTFX +13.28 Ytd
    Total Assets
    $ 1.8 bil
    Portfolio Composition (% of total portfolio)
    TOTAL 100.0%
    Cash and Equivalents 5.8
    Bank Loans 21.6
    Corporate Bonds 72.6

    Since February 2016, there has been a substantial rally in the non-investment grade credit space,particularly in the beleaguered energy and metals/mining sectors. As a result, today there is no obvious area of significant value as almost everything is trading rich. However, we believe there are pockets of dislocation in the market in a variety of sectors, including energy and the lower-rated portion of the universe that continue to offer opportunity that is idiosyncratic and credit specific. We hold that this requires considerable caution and a focus on the underlyin business quality of each respective business. In addition, with the potential for rising interest rates, we believe the ability to flex into loans and away from bonds will act as a helpful risk mitigant.
    https://www.artisanpartners.com/content/dam/documents/monthly-commentary/vr/2016/sep/ARTFX-APDFX-MCommentary-0916-vR.pdf

    HYOAX +14.19 Ytd
    Total Assets
    $ 45.5 mil
    Increase in LIBOR rates has created strong technical demand for loans ...over 50% of leveraged loans now trading above par
    Low worldwide G bond yields will continue ..demand for HY and levered loans..
    https://az768132.vo.msecnd.net/documents/22438_2016_10_18_08_51_54_627.gzip.pdf

    RPHYX
    And more on LIBOR from RiverPark/David Sherman and the Cohanzick Team
    LIBOR has risen to 0.85% at the end of 3Q16,a level near, or in some cases above, the LIBOR floor for many loans. At the same time, credit spreads for high yield bonds have narrowed since their 1Q16 peak such that we are now seeing a convergence of yields between leveraged loans and high yield bonds ...
    The increase in loans in our portfolio may temper market volatility and provide modest price appreciation if some potential technical changes play out.
    We are neither bulls nor bears. That being said, we have decidedly become defensive in our portfolios. We are “not in Kansas anymore”. The confluence of mixed signals and everincreasing exogenous risk leads us to be cautious. We are optimistic about the quality and return of our portfolios consistent with the funds’ mandates. Further, we remain nimble to take advantage of the unintended consequences resulting from government action.
    http://www.riverparkfunds.com/downloads/8340_RiverPark-Cohanzick 3Q16 Shareholder Letter.pdf
  • edited October 2016
    Being mostly on auto-pilot, I haven't paid a lot of attention to trends this year. But Yikes. Fixed Income investments and dividend paying stocks do look hot.

    My single largest holding, T. Rowe Price's Spectrum Income (RPSIX), has gained over 9% YTD.

    Price's (now closed) High Yield Bond (PRHYX) has done even better, up 13% YTD.

    Meanwhile, their highly respected (also closed) Capital Appreciation fund (PRWCX) lags both, having gained only 6.83% YTD.

    VFINX (I track it to get a sense of how the Index 500 is doing) is ahead a relatively modest 6.64% YTD.


    (Thanks to Junkster for getting the thread back on track)
  • edited October 2016
    @hank You can upgrade that to IntelliSafe Autopilot if you wish .
    Germany Says ‘Nein’ to Tesla Calling Its Tech ‘Autopilot’
    In the next few years, shopping for a luxury car will mean parsing terms like Drive Pilot (Mercedes), Traffic Jam Assist (Ford and Audi), Driving Assistant Plus (BMW), Supercruise (Cadillac), Automated Highway Driving Assist (Lexus), and IntelliSafe Autopilot (Volvo). These terms describe roughly the same thing: a car that can hold its lane and maintain a safe distance from other vehicles.
    As automakers develop cars that drive themselves for real, you can bet those terms will become more common—and more confusing, which explains why regulators are stepping in.
    No one said progress is easy.
    https://www.wired.com/2016/10/germany-tesla-autopilot
  • edited October 2016
    @TSP Transfer: To paraphrase Frost ...

    Something there is that doesn't like staying on-track.:)
  • @hank- Yeah, well let's hope that whatever the "something" is isn't part of the wondrous new self-driving stuff! :)
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