FYI: We live in exciting times, don’t you think? November, punctuated as it was by wrenching changes in financial market expectations, was thrilling indeed. Equities, gold, the US dollar and domestic interest rates – pick one – they all jumped or dived substantially following Election Night.
Not that it was just the election that had investors electrified. Take interest rates, for example. Rates for the long government bond bottomed back in July at 2.11 percent. Yields had already risen more than 50 basis points by the time ballots were counted on Election Night. And now? Well now we’re at 3.12 percent.
Regards,
Ted
http://www.wealthmanagement.com/print/72426
Comments
For me, my income area has had an increase in its value since the election by about 0.6% due in part to the equities held by some of my income funds which have increased in their value and more than offset the decline in bonds.
So, thus far, I am pleased with the performance of my income area and its fund holdings compaired to what has transpaired with a decline in overall bond valuations.
Skeet
S&P's index of municipal bonds fell 3.46% in November, writes Amey Stone in Barron's. That's the worst month since September 2008, when it fell 4.83%.
That interest rates rose sharply in November isn''t news, but S&P Dow Jones' J.R. Rieger says potential tax reform in which the highest marginal tax rate could be cut lowers the attractiveness of municipals.
http://seekingalpha.com/news/3228362-munis-suffer-worst-month-since-2008
PTIAX
Performance Trust Strategic Bond Fund
POST ELECTION 2016 COMMENTARY
Key Themes
Continued Strong Exposure to Seasoned Non-Agency Residential Mortgage Backed Securities and Commercial Mortgage Backed Securities
We believe both sectors still provide the best relative defense in a rising rate environment as well as strong cash flows from coupons..
Further Decreases to Taxable Municipals
From first quarter to second quarter, the team decreased the Fund’s allocation to taxable municipals by nearly 7%...
Increased Exposure to Tax-Exempt Municipals, With an Emphasis On 5% Coupon Bonds For Potential Rates Down Offense
We continue to believe that the overall municipal sector offers strong potential cash flows
and total returns, as well as being a more credit worthy substitute to investment grade
corporates.
http://ptiafunds.com/documents/ptiax_commentary.pdf
PTIMX
Performance Trust Municipal Bond Fund
POST ELECTION 2016 COMMENTARY
Why has the bond market reacted negatively to the election of Donald Trump?
Many investors have been confused by the municipal bond markets’ negative reaction to the election results. After markets took time to digest the potential effects of a Trump Administration, they made the speculative determination that many of President-elect Trump’s policies are pro-growth, and thus inflationary, which could lead to higher rates. ...our investment approach,..is that market “experts” cannot
consistently predict the direction of markets or interest rates. At this point, bond markets are merely speculating on potential government policy and its possible impact on rates. Policy actions should speak louder than words, and substantive direction may take weeks or months to materialize. The recent spike up in rates may or may not be short-lived, and we believe --based on experience-- that
chasing predictions does not lead to outperformance over time..
http://ptiafunds.com/documents/ptimx_commentary.pdf
And High Yield Investors
Oil Gains 14% On OPEC Deal – Analysts See Further Gains
Banks are also happy with OPEC. Another constituency pleased with higher oil prices is the banking sector, which will benefit from improved prospects of loan repayment to energy companies. Banks have had to set aside cash reserves to cover from expected defaults on their loans. Earlier this year, 15 of the largest U.S. banks stockpiled $6 billion in cash to cover energy losses, however, as the WSJ reports, defaults have not been as bad as expected. Higher oil prices will likely mean that most banks will emerge in decent shape from the two year oil bust.
http://us2.campaign-archive1.com/?u=ed58b19f2b88e4a743b950765&id=90f27389ac&e=41e04eb3d1
The top performer for the year so far among the major asset classes: US high-yield bonds (iBoxx High Yield Index), which is ahead by a strong 14.2% in total-return terms.
http://www.capitalspectator.com/major-asset-classes-november-2016-performance-review/
PTIAX was my largest bond fund holding but I sold 1/2 last month and put it into a fund Daniel Ivascyn co-manages, PFIDX. This fund doesn't get a lot of chatter here at MFO, but it is set up to (hopefully) do well in a rising interest rate environment. I've been watching for a while, and the fund is out-pacing PONDX over the last year.
per PIMCO's web site: I'm debating whether to get out of PTIAX altogether and put the proceeds into more PFIDX and possibly PONDX.
The past many months have been the less in and out I have done in many a moon and hope to remain there barring any 0.75% or so decline from any highs. Bank loans being junk corporate light do not have the volatility associated with the latter (ex 2008) and have been more of a tight rising channel vehicle (much like junk munis were in 2014 and 2015) since the February bottom. I am sure enjoying life without having to fret over the markets.
I can live vicariously through some of your choices and be glad for you when it works, and not say anything if it doesn't.
Curious as to whether your bond allocations are more for income and balancing total portfolios or for return. Would love to hear some feedback on this.
Thanks!
BXFYX looks to be a pretty small fund (100mil). Do you worry about when you exit, you will get hammered with your exit price since it sounds like you have a fair amount invested?
Seems like you are in capital preservation mode but if you were trading today for max capital appreciation, what area of the market would you look for a trade?
Thanks!
While I am in a capital preservation mode, my main focus this year has been to still try to beat the S&P (while trading bonds) and so far this year have accomplished that. However as the S&P is closing in on me have gone from 100% bank loan to 80% with the other 20% in junk corporates (IVHIX) I may increase that 20% if warranted. As to what I would be trading were I younger and more hungry I really can't answer that. Obviously small cap value has been the place to be but really haven't looked at any funds there. While I would never ever buy a groupthink fund recommended on this board or any other, I must say DSENX sure has performed well.
The equity optimism on 2017 has been a bit worried. Kind of reminiscent of all the optimism on this board regarding healthcare/biotech in 2015. But then I always worry.
I am just becoming familiar with BL's and have recently purchased LFRAX (Lord Abbett; pays a 4+% yield). In a rising interest rate environment, i would presume over the next two or three years, doesn't an investment in a FRBL's make some sense as a diversifier and hedge? Maybe not as a long-term/forget-about-it holding, but maybe as a medium-term investment? Or, at least while rates are rising?
I understand BL's move more off of the LIBOR, but does anybody think rates, in general, are going down and staying down for very long?
Do you believe that all of the rate increases over the next two years have already been "baked-in"? Are there better investment vehicles in a rising rate environment, which we appear to be in now and probably for the foreseeable future?
Of course, NO ONE knows for sure, but we are being told this by those who influence rates; shouldn't we pay heed?
Does anyone see a recession in the near-term?
I also own PONDX, PTIAX and GIBLX along with a Muni, so, I am not putting all of my eggs in one basket (pardon the cliche's).
Thank you for any comments, opinions and thoughts!!
Matt
p.s.
I've posted similar comments and questions on M*
Does anyone see a recession in the near-term?
One year or less no, 4years or less yes.
Goes back to , will history repeat itself.
Derf
I guess what I was trying to say is: why would rates go down and stay down over the next few years, thus why aren't BL's a good investment for the time being?
I don't expect 10+% going forward, but as a stabilizer/hedge with a decent yield, that doesn't seen too bad to me. Again, I am just learning about this category, so I could be way-off; that is why I pose these questions and thoughts. I am trying to educate myself and these forums are often a good avenue!
Matt
I would sure like to know the whos that are so down on bank loans. Even before the election that category has been the most overloved out there and the most recommended for a rising rate scenario. Rates began rising this summer. I have pretty much all my nest egg there (with a tad in junk corporates) and my only worry is it is such a sure thing trade that everyone seems to agree on, But so far so good and waiting to see how January unfolds.
Day after your post of 12/04 bought a cef loan fund TSLF.
http://fwcapitaladvisors.com/wp-content/uploads/2016/12/TSLF_Brochure_2016_Q3.pdf
Also own RIMOX Mix of Hi-Yield/Bank Loans /Alts in EM/Euro/Domestic http://www.citynationalrochdalefunds.com/Content/pdfs/2016/8427/FIOF Portfolio Holdings by Sub-Adviser Nov 30 v1 12-07-16.pdf
I would sure like to know the whos that are so down on bank loans.
Gundlach's webby If you must own fixed inc.-floating rates
Note to @Crash Gundlach's Dec webby: Trump not good for Bond prices.DBLTX always a lower duration than AGG makes the fund a good choice in a rising interest environment.
Bond Market Fascinations: An Interview
Acropolis Investment Management LLCPosted on December 19, 2016 by David Ott
I..don’t think that the shift in rates is entirely explained by the election. The other factors include a reversal of the ‘fear trade,’ which has been going on for years where investors flock to safer assets such as US Treasury bonds to avoid uncertainty. This, along with central bank policies, took yields around the world into negative territory and it came to a paramount this summer with the uncertainty surrounding the Brexit vote.
Over the summer, you can see that everything was locked up and that there was a lot of sideways movement. Once the election hit, yields just broke free. And, of course, the Fed reducing monetary stimulus is a part of it too.
In the short-term, you could see spikes, but I’m not sure that the economy can take substantially higher interest rates. There’s research now that shows that if the yield on the 10-year Treasury gets up to 2.65 or 2.75 percent that it would negatively affect the economy.
I wrote an article for ALM Insights about the debt level in our country (that you can read by clicking here: the article starts on page six). The last time the Fed was raising short-term interest rates in 2004, the total-debt-to-GDP was 180 percent.
When you look at public and private balance sheets today, we’re almost at 260 percent, meaning that our total debt, both public and private, are much higher relative to the size of our economy. Small changes in interest rates will be magnified today because the economy is more tied to borrowing costs. It’s like anything with leverage.The Fed’s forecast for next year that just came out last week calls for three hikes to the overnight rate. They’re the most aggressive forecaster in the market right now – the market only thinks that there is one or two more coming.
The Fed has consistently had much greater expectations than the market. This time last year, they projected four increases and we got one. The year before that, they said four and we got zero. Their track record is not very good.
I like (the) old argument that moving bond duration around is akin to trying to time the stock market since duration is essentially the main beta for bonds. Forecasting changes in interest rates is an impossible task.(we try )not to gamble on the direction that rates will move next.
http://acrinv.com/bond-market-fascinations-interview/
I am referring to many, not all, various forum participants who seem to feel BL's are somewhat over-bought and maybe even dead money. I've read that rate increases are baked-in, LIBOR isn't going to move much more, etc.
You yourself stated ""sure thing" trades always make me leery", you reduced your allocation from 100% to 80%. Of course, this does not mean your bearish, I presume just concerned.
Maybe the term i should have used is "concerned"???
As I previously stated, I posted this question on M* in response to many forum participants who feel this way. I don't at this point and until I something changes my mind, I think BL's are a good place to be for the foreseeable future; maybe not for the long-term, but why not for the near-term?
I have no plans on exiting LFRAX at this time; it is not a huge percentage of my overall portfolio, but it is my second largest taxable bond holding, next to PONDX.
Matt
This was merely to get some exposure to corporate junk. I am very bullish on Bl funds but I know enough that when I get "very" bullish and run with the herd on anything to have a tight exit strategy in place. BL are overbought but have been so much of 2016.
You have a nice bond fund in PONDX. A rare groupthink fund that just keeps on chugging along year after year.