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Our Funds Boat, 3-18-12 Addendum

edited March 2012 in Fund Discussions
Howdy,

As I encountered the text limiter of the site for the primary write, I will add a few notes here.

One may readily find the impact upon our portfolio mix from the recent "run up" in Treasury yields. All of this small damage did not come from the investment grade bond sector; as high yield bonds were just kinda floating around on their own, too. We also had some continued downside from the FSAGX holding; although this was reduced by 1/2 about 10 days ago.

I do feel that the equity sector is a bit over-cooked at this time and will not add any fresh invesment meat to this grill area; at this time.

I noted about a week ago regarding the VIX, with the trading symbol of VXX; and that this area is now traveling near 5 year lows. One may choose whatever their own value may be to this equity market sentiment guage; but the guage appears to be too happy to this house.

A nominal reference....kinda; regarding the 10 year Treasury price and yield from the past 2 weeks and how it may relate to some of your bond fund holdings, strictly as a reference point.

$TNX (10 year yield), has increased about 19%
$UST (10 year price), has decreased about 2.6%

NOTE: the above tickers will not translate into valid symbols at MFO

So, if one had purchased a straight forward 10 year Treasury product/fund about 2 weeks ago; the value would have been reduced by - 2.6%. Other Treasury bill, note or bond issues have varying degrees of this change.

If you are one to monitor such short term movenments with your own bond fund holdings in the investment grade sector; you may use this - 2.6% down move against an active managed bond fund. You must keep in mind that active managed investment grade funds have a broad mix of holdings in most cases. It would not be uncommon for an IG bond fund to include various Treasury issues, including TIPs, mortgage related issues, as well as IG corporate issues. The other meaningful portion of a given IG bond fund is the duration/maturity periods involved with particular holdings; and lastly but significant, the ability of managers to use various methods to modify the holdings values with options, short positions or whatever other hedge tools may be used.

Even the most narrow of bond sector funds will find many and varied holdings and methods used to manage the fund. TIPs funds are a prime example. One fund from another will vary with the issue period of the TIPs held; as well as other IG bonds may be held within the fund, including other Treasury issues and corporate bonds. One will find a fairly broad range of returns among the TIPs funds over the last 1 and 3 year period.

Lastly, and obviously. When interest rates/yield move upward, the underlying particular bond price will move downward, eh? One then must consider all factors related as to whether a new trend has emerged; or whether the event is a short term event, not unlike changes in equity markets.

Keep a firm hand upon the rudder of your boat; as you will always find a tug upon the handle/wheel from the ever changing currents in the investment waters.

Take care,
Catch

Comments

  • edited March 2012
    Hi Catch 22, Skeeter here …

    Although I have not responded to your updates in a while I have been reading them.

    I agree that equities have run pretty strongly since their October 1st low and have now become too pricey for my taste. Year-to-date the S&P Index is up about 11.7%. And, with this I have been selling equities since the first part of February as my equity allocation had risen to about 63% to 64% of my portfolio. As you may recall I was a buyer of equities back in the summer when they were soft. I have now reduced equities to about 55% and with this I am on hold. I will most likely knock another 5% out of them over the coming two months and be down to about 50% come May. It depends on how they move and what kind of value they might hold. Currently, Morningstar is showing equities in general at only about a 2% discount. Not enough to encourage me to do some buying … more like selling.

    When it comes to fixed income I give weight to your thoughts. I have noticed that the ten year treasury is down about 1.4% year to date and with a low yield which has moved from about 2% at the beginning of the year is now about 2.3% does not take much to get upside down. As you may recall about a year ago or so I reduced income form 30% to 25% within my portfolio and I may reduce some more in the near term. I most likely will hold at 20% and not go back of that.

    Let's see that would put me 30% cash, 20% income and 50% equity if I follow through on what I just wrote. And, with this, I could start to reconstruct my CD ladder ... when interest rates move upward.

    Take care Catch … I sincerely wish you the very best.

    Skeeter
  • Skeeter,
    would like opinion as to if I Bonds could be considered
    cash in ones holdings. I have about 15% I bonds in our entire
    investment funds holdings also 25% money market cash.
    regards
    circa33
  • Hello circa33,

    I have linked below a site that tells more on US Government I Bonds. Seems to me they are a very safe invesment and one that can be easily liquidated. I consider my CD's as cash as they are a time deposit which is FDIC Insured. After your reading of the below link ... you decide if they are a cash equilvent in your eyes. The below link covers four scenarios which you might find of interest. To me they could indeed be included within a diverisfied cash position.

    http://www.wisebread.com/while-waiting-for-rates-i-bonds

    Hope this helps.

    Skeeter
  • circa33,
    good evening Skeeter;
    Thank you. I have bookmarked the I-bond infomation as it has a lot of information.
    Regards
    circa33
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