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Re: Bond OEF Investing for More Conservative Investors

Gary: "It has become clear that the common thread among the “conservative” funds talked about here are MBS. So many of these assets are being put on the open market to fund redemptions. The bottom has dropped out and caused NAVs to tank. It appears that housing, in another form has, has played a role similar to 2008. The IOFIX thread was an eye-opener on this subject. The next question will be where all of these “distressed” MBS assets are going?"

This thread has a lot of "new topics" to discuss now.  I suspect bond oef performances in the crash of 2020 will become frequently mentioned in poster opinions.  We now have the topics of what you should invest in the midst of the crash, why funds previously considered appropriate for "conservative" investors are going to be more difficult to define and agree on in the future, and possibly what a "conservative" investor will invest in to recoup losses of 2020.  When you start a thread with a rather general topic, like this one is, you rarely anticipate all of the complexities of what a once in 10 to 15 year crash will do in changing thread discussions. So here are my thoughts about "where all of these distressed MBS assets are going?"

1.  Assuming that funds like IOFIX, SEMMX, and PIMIX are still with us, I suspect these existing funds (and similar funds) will do their best to buy these distressed assets.  That is essentially how funds like PIMIX and DBLTX got their starts around 2008, by digging through the aftermath of 2008 and buying these bargains that very few wanted.  Investors will be willing to go back into these funds after the 2020 blood bath, because they are familiar with these funds and will be focused on recouping losses and taking advantage of these funds rebounding.  PIMCO has already started talking about all of the cheap and attractive mortgage based buying opportunities they are now seeing.  

2. Just like PIMIX and DBLTX in the 2008 period, I suspect we will have a number of new funds being born, that will not have the burden of the 2020 market collapse on their performance histories, and they will scoop up these distressed MBS assets as their initial asset bases.  If the new funds are from established mutual fund companies, I suspect that investors will embrace them because of the established companies being considered "stable".  Of course, companies we have never heard of will likely spring into existence, and investors will decide if they are hot new companies that are worth trusting--if there are some well known managers running them, then manager familiarity will help in the marketing.

I will personally have new level of respect for the risk of some of these mortgages, but recoupment of losses will probably lead me to put some of my cash back into some of these well known funds, because I suspect that I will think that coronavirus will likely be under control in the future, we will have a new emphasis on identifying and preventing such virus related events from reoccurring, and we may rationalize that companies who buy these MBS assets "might" do a better job of managing them in the future.  I am not sure what I will do with all of my existing cash when I start the process of reinvesting, but I am relatively sure that I will look at bond oefs that hold some portion of their assets in MBS, as a likely recipient of some part of my current cash holdings.  

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Re: Bond OEF Investing for More Conservative Investors

DT: 1.  Assuming that funds like IOFIX, SEMMX, and PIMIX are still with us, I suspect these existing funds (and similar funds) will do their best to buy these distressed assets. 

FD: the problem now is that IOFIX trying to sell not buy

(link) A crisis in credit markets deepened on Sunday as a cluster of funds that own mortgage bonds sought to sell billions in assets to meet investor redemptions, sparking pleas for government intervention.

The sales included at least $1.25 billion of securities being listed by the AlphaCentric Income Opportunities Fund on Sunday, according to people with knowledge of the sales.

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Re: Bond OEF Investing for More Conservative Investors

"DT: 1.  Assuming that funds like IOFIX, SEMMX, and PIMIX are still with us, I suspect these existing funds (and similar funds) will do their best to buy these distressed assets. FD: the problem now is that IOFIX trying to sell not buy"

FD, I assumed that was rather obvious. No one is buying these distressed assets "now", but when the crash subsides, and companies start getting new money, that is now on the sidelines, my best theory of what will happen to distressed MBS assets, is that they will be purchased by well known bond oefs, that have used them in the past--because those companies will consider them "cheap assets" that will be great investments for the future.  All that cash on the sidelines will have to go somewhere, and I am betting those with cash, will spend it where they have spent it in the past---funds like PIMIX who now consider MBS cheap and plentiful.

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Re: Bond OEF Investing for More Conservative Investors

Right now credit is distressed, all of it - muni, HY, nonagency MBS. So, going forward, aggressive multisector funds may be the way to go. Time for conservative funds may have passed [even though some of the hits in short-term bonds have been shocking]. The Fed actions today [unlimited support] may mark the turning point.

 

 

YBB
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Re: Bond OEF Investing for More Conservative Investors


@yogibearbull wrote:

Right now credit is distressed, all of it, muni, HY, nonagency MBS. So, going forward, aggressive multisector funds may be the way to go. Time for conservative funds may have passed [even though some of the hits in short-term bonds have been shocking]. The Fed actions today [unlimited support] may mark the turning point.

 

 


Yogi, "conservative" is a relative term, that gains its meaning in comparison to the riskiness of other entities.  After the crash, when you evaluate riskiness of bond oefs, funds like PIMIX will still be rated as more conservative than equity bond oefs, HY Sector Bonds, EM Sector Bonds, etc.  Traditional risk metrics, like SD, will still rate a fund like PIMIX as less risky than other types of funds.  No doubt that categorical comparisons of funds in the same category will still reflect longer term performance, not just crash performance. We all tend to rationalize what risk metric is the most important/valuable to measure riskiness of our bond oef selections, and I do suspect a fund like IOFIX will more accurately have its riskiness reflected going forward, so how many investors will spend their money there, compared to another multisector bond oef that handled the crash better, is yet to be seen.  Never underestimate the power of fast profit and greed in impacting where investors will put their money, especially when it comes to recouping crash losses.

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Re: Bond OEF Investing for More Conservative Investors

Yes, and why I posted in the last several days that I will look first at the funds I used to own (IOFIX,NHMAX). These 2 funds got hit the hardest within their categories. 

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Re: Bond OEF Investing for More Conservative Investors

@FD1001 , surely you are following your own IOFIX thread. IMO, investors shouldn't touch it as it may suspend redemption, change structure [good + bad sub-funds] or become an internal-fund [one can buy but redemption limited]. This may happen voluntarily or involuntarily and that is why I am watching SEC/Edgar filings; it surely is in violation of the SEC general fund liquidity rule(s). Broader multi are different - I may even look at Dan Fuss LSBDX/LSBRX but I am more into CEFs. HY muni may be fine but I like core-plus muni. I think I have said what I needed to say before it is considered totally off-topic here. We can carry on this conversation in other threads that exist.

YBB
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Re: Bond OEF Investing for More Conservative Investors

YBB, correct. I would not recommend what I do for the average investor.  

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Re: Bond OEF Investing for More Conservative Investors

Yogi: "I think I have said what I needed to say before it is considered off-topic here. We can carry on this conversation in other threads that exist."

I have learned some tough lessons, in my experience in starting threads at M*.  One of those lessons, is that M* does not have any requirements that posters stay on topic.  As an OP, you really have no special powers or authority to ensure posts stay on topic.  I start threads to stimulate a topical conversation associated with a topic, but that is largely symbolic and posters will use the thread as they choose, with really no negative ramifications.  It is just the reality you have to learn to accept if you want to post at M*.  I have adapted, and have stopped being what you previously labeled as "overprotective".  Hopefully posters will get whatever value they seek on this thread,

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Re: Bond OEF Investing for More Conservative Investors

I'm looking at SWTXX (Schwab Muni MM) and I don't see how the yield is 2.8%.  When I put it on a one (chart), the return is just 1.1%.  If I could get 2.8% on a MM the whole world would invest in that fund.

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Re: Bond OEF Investing for More Conservative Investors


@FD1001 wrote:

I'm looking at SWTXX (Schwab Muni MM) and I don't see how the yield is 2.8%.  When I put it on a one (chart), the return is just 1.1%.  If I could get 2.8% on a MM the whole world would invest in that fund.


I have the same thoughts and have my suspicions about how long that will last.  Regardless, right now I will stay in the safest government backed MM fund that is available.  When uncertainties start subsiding, I will take another look at SWTXX.

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Re: Bond OEF Investing for More Conservative Investors


@FD1001 wrote:

I'm looking at SWTXX (Schwab Muni MM) and I don't see how the yield is 2.8%.  When I put it on a one (chart), the return is just 1.1%.  If I could get 2.8% on a MM the whole world would invest in that fund.


It is just a 7-day thing and may quickly pass by for muni m-mkt SWTXX, VMSXX, etc [these do have potential 2% redemption fee and/or 10-day gates]. I am watching these but for now I am sticking with gov m-mkt SNVXX, VMFXX, SPAXX, FZCXX.

YBB
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Re: Bond OEF Investing for More Conservative Investors

    Bond Yields                                  1 year     2 year      3 year    5 year      7 year    10 year    20 year   30 year

Agencies
1.74%1.78%1.24%2.06%2.27%2.51%2.61%2.12%
Municipals highest grade
2.96%3.25%3.28%3.40%3.42%3.67%3.72%3.64%
Municipals high grade
3.61%3.81%4.05%3.71%4.00%4.03%4.13%4.32%
Municipals upper-medium grade
6.80%4.97%4.10%4.26%4.22%5.07%5.04%4.35%
Municipals investment grade
4.22%4.25%5.00%4.75%5.58%5.80%6.14%4.99%
Corporates highest grade
2.00%2.50%0.79%1.80%2.43%1.64%3.38%3.28%
Corporates high grade
4.00%4.15%3.82%3.93%3.37%3.70%4.80%4.01%
Corporates upper-medium grade
4.50%4.94%5.53%5.81%5.38%6.04%6.05%5.09%
Corporates investment grade
18.51%17.69%20.84%13.62%13.72%13.08%10.14%8.74%
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Re: Bond OEF Investing for More Conservative Investors

This is a current chart on yields from Vanguard. These are individual bonds.

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Re: Bond OEF Investing for More Conservative Investors

Question for everyone, is a bond fund such as VWALX or VWIUX able to populate the portfolio with these bonds that are now priced really low or do they just keep what inventory they have left after having to sell positions to cover redemptions?

Do they wait for new money in order to buy more bonds?

Of course the existing bonds will yield more now.

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Re: Bond OEF Investing for More Conservative Investors

My assumption is as new money comes in more assets need to be purchased. I do not think that there is a way to buy assets without the cash on hand. If borrowed that is leverage. 


@Fishingrod wrote:

Question for everyone, is a bond fund such as VWALX or VWIUX able to populate the portfolio with these bonds that are now priced really low or do they just keep what inventory they have left after having to sell positions to cover redemptions?

Do they wait for new money in order to buy more bonds?

Of course the existing bonds will yield more now.


 

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Re: Bond OEF Investing for More Conservative Investors


@Fishingrod wrote:

Question for everyone, is a bond fund such as VWALX or VWIUX able to populate the portfolio with these bonds that are now priced really low or do they just keep what inventory they have left after having to sell positions to cover redemptions?

Do they wait for new money in order to buy more bonds?

Of course the existing bonds will yield more now.


Just my humble opinion and guess--right now all cash, if any left, is used to pay redemptions.  If you send them new cash now for an investment, I suspect they will just immediately use it to pay for current and future redemptions.  Yes, you will purchase new shares at current prices, but the odds are that a fund is not able to buy new assets, under current market crash conditions.  In the future, when the crash is over, and investors have stopped heavy redemptions, then a fund will invest that new cash into new assets they view as attractive and in compliance with the fund prospectus--I am not clear on what kind of yield you will get with whatever new asset that fund chooses to purchase.

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Re: Bond OEF Investing for More Conservative Investors


@yogibearbull wrote:

@FD1001 wrote:

I'm looking at SWTXX (Schwab Muni MM) and I don't see how the yield is 2.8%.  When I put it on a one (chart), the return is just 1.1%.  If I could get 2.8% on a MM the whole world would invest in that fund.


It is just a 7-day thing and may quickly pass by for muni m-mkt SWTXX, VMSXX, etc [these do have potential 2% redemption fee and/or 10-day gates]. I am watching these but for now I am sticking with gov m-mkt SNVXX, VMFXX, SPAXX, FZCXX.


I know it's a 7 day yield but there is usually a correlation to past performance.  3 month chart of SWTXX,SNVXX,VMFXX show 0.24-0.36% performance which is around 1-1.4% annual performance and it will be lower than that based on decreasing rates.  I have never seen a 7 day yield of 3 times greater than the actual performance of the last 3 months.

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Re: Bond OEF Investing for More Conservative Investors

Thank you @Gary1952 , @dtconroe ,

This fear over munis is definitely roiling the muni market.

All these revenue bonds from States that have no revenue now is disconcerting the bond holders.

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Re: Bond OEF Investing for More Conservative Investors

@FD1001 

"I have never seen a 7 day yield of 3 times greater than the actual performance of the last 3 months".

_________________________________________________________________________________________

The same thing happened in 2008, the muni market MM funds were yielding 4 to 5 percent real quick.

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