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Contributor ○○○

Re: First came MLP then came 2X..what's next?

Bentley, I don't see, IMHO,(I know humble opinions are ok), any wisdom in "Hop aboard" post, or your "Dow 31,000 or 21,000?
"Since my last thread in which I opined a climb to 28,000 was removed, much progress has been made. Today we are expecting a big announcement which will move the markets. I expect good news which will cause markets to rise rather than fall" were timely posts?

Don't take it personally, Friend, but I'm just raising a red flag to those that don't invest as you. New investors would have been at odds with you if they had invested a lump sum upon retirement in late 2019 only to find their investments down to the point  we are at now.

Best to you

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Valued Contributor

Re: First came MLP then came 2X..what's next?


@RainGater wrote:

@Bentley wrote:

[Edit at 1900 EST]........I quoted RainGater accurately, he must have gone back and changed his post without an edit notation.

 Does this look like a reasonable portfolio to you?


Yes, I edited it to NOT make it more personal and sorry about that.

No, it doesn't look like a reasonable portfolio and that's why I wanted to pick his brains to see how he is able to make it work? No one wants to keep losing as it is very clear to me, and most others, that if you hold these toxic instruments long term, you will lose a lot.

So, he must be doing something different than what you assume as he seems to be a very knowledgeable investor when it comes to derivative investing. He seems to understand risk/volatility very well and there is no question about it.


 

Lobby and I have been posting back and forth for years. I say he does not understand risk/volatility as they relate to the 2X ETN' products he uses. In 2015 he introduced the forum to the UBS 2X products with MLPL. Hooting and hollering about its outrageous yield. Many members jumped aboard, one member posted his buys, all eight. That summer MLPL went from $75 to $12 in the blink of an eye. A couple of us tried to explain these instruments were dangerous but to no avail.

 Hopefully, ElLobo will post his experience with his 100% levered portfolio. What I expect he will post is the yield of the S&P500 vs the yield of his levered products. Don't be fooled, it is the total return you need to focus on. Who cares if a product yields double digits if it loses 98% of its value?

 I apologize if I gave you the impression I hold any animosity against El or any other member. While I may be straightforward in raising red flags about specific strategies/products I never personally attack, demean nor call others member's names. It would be great if others could do the same.

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Explorer ○○○

Re: First came MLP then came 2X..what's next?

In regards to PFFL what does this mean? - 

In the event of a Loss Rebalancing Event, the Financing Rate will not be adjusted.
Loss Rebalancing Events may occur multiple times over the term of the Securities and
may occur multiple times during a single calendar month. On the next Monthly
Valuation Date following one or more Loss Rebalancing Events, the Monthly Initial
Closing Level will be replaced with the most recent Loss Rebalancing Closing Level in
the calculation of the Index Performance Ratio.

Does the cash flow stay the same and only the indicative value gets reset?

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Re: First came MLP then came 2X..what's next?

@RainGater 

"No, please answer as I want to get a different perspective on these investments and curious to see how you are making it work for a long time."

"No, it doesn't look like a reasonable portfolio and that's why I wanted to pick his brains to see how he is able to make it work?"

OK, you're forgiven.  You're interested in knowledge, the troll is, unfortunately, still a troll!  8-))

"At the same time, I also 'allocated' away from 100% stocks to 60/40, with my bond 'allocation' being 50/50 PCI and PFFL (2X leveraged prefereds). My stock allocation, in turn, is 50/50 MRRL (2X leveraged MREITs, high yield) and SDYL (2X leveraged divey aristrocrats)."---------ElLobo 4 weeks ago"

Known - 4 weeks ago, I held one CEF, PCI, 3 ETNs (SDYL, PFFL, MRRL).  It was roughly 2X leveraged.  It was roughly 60/40 stocks/bonds.  Stocks were roughly 30% divey aristrocrats, 30% MREITs.  Bond were roughly 20% Preferred stock, 20% MBSs (Mortgage Backed Securities).

Had I wanted to NOT use 2X leverage, I could have gotten by with 5 ETFs, SDY (30%), REM (30%), PFF (10%), PGX (10%), and BND (20%).  I am not sure ifn there is an unleveraged equivalent to PCI, so I simply used the bond market index ETF.  That's the same 'asset allocation' as what I use (60/40).  The same 30% in divey growth (aristrocrat) stocks, the same 30% in MREITs, the same 20% in preferred stocks.  The difference is how much of PCI is MBS, compared to BND.

Now, for my next 'comparison', MRRL was called for early redemption.  It was the 2X edition of the unleveraged ETF REM.  An equivalent 2X version of MRRL is REML.  It hasn't been called for early redemption, so I am going to substitute REML for MRRL.  Make sense, so far?

With no knowledge yet as to what the actual cash distributions of all of these are going to do, going forward, and for consistency, here is a table of the published distribution yields for these funds/notes, today, from Yahoo!:

2XYieldXYieldLeverage Factor
SDYL6.91%SDY2.78%2.5
REML21.86%REM8.61%2.5
PFFL11.37%PFF5.52%2.1
PFFL11.37%PGX5.44%2.1
PCI14.62%BND2.61%5.6
Average13.23% 4.99%2.6

Now, a month ago, all of these distribution yields were lower, simply because all of the share/unit prices were higher.  Doesn't make a difference, however, for my final point, since 2X yields will always be higher than 1X yields.

The point is that each of the funds are considered 2X the risk/return of their unleveraged brethren, yet the distribution yields themselves are all higher than 2X.  For example, the distribution yield for 2X SDYL is 6.9% compared to the unleveraged SDY distribution yield, which is 2.78%.  The ratio of 6.9%/2.78% is a yield leverage factor of 2.5, compared to the total return leverage factor of 2!

Now, I won't explain why this is so.  I'll only note, for the record, that all of these numbers will change in a month and that yield leverage factors will undoubtedly go down.  I just don't know by how much.

So to answer, hopefully, your questions, holding a 2X leveraged portfolio, by definition, gives me twice the returns of an unleveraged portfolio while exposing me to twice the return risk but I receive MORE THAN twice the income, in my case, 260% more income cash. I consider that 60% as a 'leverage bonus', essentially a free lunch (over and above the 2X risks I'm assuming!

Anyhow, hope this helps with your understanding of what I do.  I'll close with the observation that, after the recent market tank, where EVERY asset class tanked, even gold and Treasury interest rates, with oil based assets AND mortgage based debt especially hard hit, I've 'rebalanced'.  It is my observation that the whole market collapse over the last month was driven by a general de-leveraging and the winding down of margin and hedges, which, quite obviously, hit my portfolio quite hard.

I am, this morning, roughly 40% SDYL, 50% PFFL, and 10% cash.  I am out of PCI.  I believe it is still going through a deleveraging.  It's NAV has not had an up day since the first of the month.  Once it bottoms, I'll consider getting back in.

Ditto for REML, which is much more problematic, since now the Fed and the Treasury are involved in sorting through the carnage driven by the collapse of the Treasury yield curve this month and the end of the Great 40 Year Bond Bull Market.  Sidelines for me for this sector.  My MBS and MREIT money (50% of my pre-crash portfolio) is much more productive in preferred stocks.  However, if it starts to look like it is coming back (REM looks fine), I'll reevaluate, which I do anywaze!

PFFL seems to have formed a nice, sharp bottom last Wednesday at its mandatory $5/unit trigger point, but has traded and closed above $10 since.  A month ago, it was trading at it's normal $25, where I expect it will recover to later this year.

Finally, my divey growth 2X note, SDYL, also seems to have also formed a nice sharp bottom, at $35, on Monday, traded above $45 the last two days, and around $50 the last two weeks.  A month ago, it was at an all time high over $100.  SDYL came nowhere close to its mandatory redemption trigger of $5/unit.  SDYL came out in May of 2012, at $25, and has traded above that level its entire lifetime.

I've held steady with SDYL, neither buying or selling.  I think it's bottomed, but I'm hedging a bit to see what happens with the stock market in response to the coronavirus, going forward.  If the market takes off, as everyone expects, I'll put the rest of my cash into it, pyramiding up, so to speak, and locking in a great yield on cost as well!

In terms of retirement withdrawals, my March withdrawal was already booked whenever all of my portfolio went ex-div on the 12th.  Next month's distributions are also booked in the sense that they represent distribution payments, to me, from individual stock divey received by the funds THIS month!  So I don't expect much of a decrease in April, or until individual companies start announcing divey cuts.

Then, all of my funds pay a monthly distribution, but the payments made in January reflect diveys received in December, the end of the quarter.  As a result, the largest distribution months are the Jan/Apr/Jul/Oct cycle, where I usually receive two months of distributions.  So, without any cuts, my retirement withdrawals are set for March, April, and probably May as well.  At any rate, I'm not worried, going forward.

Hope this helps.  Easy peesy!  8-))

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Contributor ○○○

Re: First came MLP then came 2X..what's next?


@MNfish wrote:

In regards to PFFL what does this mean? - 

In the event of a Loss Rebalancing Event, the Financing Rate will not be adjusted.
Loss Rebalancing Events may occur multiple times over the term of the Securities and
may occur multiple times during a single calendar month. On the next Monthly
Valuation Date following one or more Loss Rebalancing Events, the Monthly Initial
Closing Level will be replaced with the most recent Loss Rebalancing Closing Level in
the calculation of the Index Performance Ratio.

Does the cash flow stay the same and only the indicative value gets reset?


I dunno, fish.  This is the first month where the Indicative Value tanked, from $25 to $5 over a two week period!  I guess we'll find out in a few weeks, but I expect a decrease in the distribution!  I guess the politically correct terminology for de-leveraging is now 'Loss Rebalancing Event'!  8-))

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Valued Contributor

Re: First came MLP then came 2X..what's next?


@outandabout wrote:

...New investors would have been at odds with you if they had invested a lump sum upon retirement in late 2019 only to find their investments down to the point  we are at now.

 


On this note, I have flip-flopped over the last several years, as to what to do with my eventual pension funds. Cash out or annuity. Not any more! After seeing what happens to even the safest bond funds (incl 2018), I am absolutely going for the sure thing - 100% annuity w/ full survivor benefits and pop-up.

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Re: First came MLP then came 2X..what's next?


@DrVenture wrote:

@outandabout wrote:

...New investors would have been at odds with you if they had invested a lump sum upon retirement in late 2019 only to find their investments down to the point  we are at now.

 


On this note, I have flip-flopped over the last several years, as to what to do with my eventual pension funds. Cash out or annuity. Not any more! After seeing what happens to even the safest bond funds (incl 2018), I am absolutely going for the sure thing - 100% annuity w/ full survivor benefits and pop-up.


I did the same...  Note, though, that the annuity has the same problem that you would have: It has to invest, and its investments can crater!  The advantage, I guess, is that there is a larger bucket to work with, and you don't have to watch it happen!  8^b

Then, too, there is the dual question of how well-funded the pension is, and who can get to it!  I'm part of NYS educational system.  Lots of states have their fingers in the mix and 'borrow' freely from their pension system.  NY cannot do that!  Consequently, we're well over 90% funded, and NY is CONSTANTLY trying to stick their hands in the till.  We know better!  In lots of states, the pension system is probably pretty shaky.

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Valued Contributor

Re: First came MLP then came 2X..what's next?

I suppose there is no such thing as a sure thing, but my pension fund (corporate) is fully funded and frozen, so no new obligations. The company is still required to add to it, if the balance should erode.

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Participant ○○

Re: First came MLP then came 2X..what's next?


@ElLobo wrote:

Then, all of my funds pay a monthly distribution, but the payments made in January reflect diveys received in December, the end of the quarter.  As a result, the largest distribution months are the Jan/Apr/Jul/Oct cycle, where I usually receive two months of distributions.  So, without any cuts, my retirement withdrawals are set for March, April, and probably May as well.  At any rate, I'm not worried, going forward.

Hope this helps.  Easy peesy!  8-))


Wow, you wrote more than I expected and thank you for the deep analysis/approach and how it works for you. I am happy for you. :)

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Valued Contributor

Re: First came MLP then came 2X..what's next?


@ElLobo wrote:

@RainGater 

 

 I held one CEF, PCI, 3 ETNs (SDYL, PFFL, MRRL).  It was roughly 2X leveraged. 

2XYieldXYieldLeverage Factor
SDYL6.91%SDY2.78%2.5
REML21.86%REM8.61%2.5
PFFL11.37%PFF5.52%2.1
PFFL11.37%PGX5.44%2.1
PCI14.62%BND2.61%5.6
Average13.23% 4.99%2.6

So to answer, hopefully, your questions, holding a 2X leveraged portfolio, by definition, gives me twice the returns of an unleveraged portfolio ........ 

 

 

There is a big difference in how many assume 2X products work and how they actually do work. While the table of data presented in your post presents yield comparisons it has left out a much more important data point. Portfolio values! Hopefully the data below which I posted yesterday will shed more light on dangers of using UBS 2X levered products. These products locking losses at the worst possible time for the investor. Individual stocks, etf's, mutual funds, REITS etc..........may fluctuate but there prospectus' do not contain language like accelerated redemption or set limits that allow the issuer to close down the investment leaving investors high and dry.

MRRL……………..-98.47% YTD                           

SDYL……………..-52.85%. YTD

PFFL………………-46.41% YTD

PCI…………………-35.33% YTD

 The return of the S&P500 was -24% when I posted the YTD returns of your leveraged products. Each time one of these products collapse an investor's nest egg suffers a loss in value.

 

 

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Explorer ○○○

Re: First came MLP then came 2X..what's next?


@ElLobo wrote:

@MNfish wrote:

In regards to PFFL what does this mean? - 

In the event of a Loss Rebalancing Event, the Financing Rate will not be adjusted.
Loss Rebalancing Events may occur multiple times over the term of the Securities and
may occur multiple times during a single calendar month. On the next Monthly
Valuation Date following one or more Loss Rebalancing Events, the Monthly Initial
Closing Level will be replaced with the most recent Loss Rebalancing Closing Level in
the calculation of the Index Performance Ratio.

Does the cash flow stay the same and only the indicative value gets reset?


I dunno, fish.  This is the first month where the Indicative Value tanked, from $25 to $5 over a two week period!  I guess we'll find out in a few weeks, but I expect a decrease in the distribution!  I guess the politically correct terminology for de-leveraging is now 'Loss Rebalancing Event'!  8-))


"I am, this morning, roughly 40% SDYL, 50% PFFL, and 10% cash."

Maybe it's just me, but if I had 50% of my portfolio invested in it I would **bleep** sure pick up the phone and find out.

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Contributor ○○○

Re: First came MLP then came 2X..what's next?

"I am, this morning, roughly 40% SDYL, 50% PFFL, and 10% cash."

Maybe it's just me, but if I had 50% of my portfolio invested in it I would **bleep** sure pick up the phone and find out."

Your question was:

"Does the cash flow stay the same and only the indicative value gets reset?"

My answer was:

"I guess we'll find out in a few weeks, but I expect a decrease in the distribution"

I can wait a few weeks to find out the amount of the distribution.  Even UBS won't know until the end of March what it will be.  It's always calculated, as is the leverage reset, based upon end of the month numbers.

What I DO know is that the Indicative Value tanked, from $25 to $5 over a two week period, yet the mandatory redemption trigger was not pulled, for PFFL.  After spending 1 day, at $5, it has 'appreciated' 200% over the last 6 trading days, up to $14.48 yesterday, still a bit below its Indicative Value of $14.52.

As I said, I'll find out in a few weeks what the per share distribution will be for April, and how much total cash shows up in my account as a result of the number of shares I own, today, compared to a month ago!  8-)

It, apparently, IS just you.  Do you, or anyone else reading this thread, invest in PFFL, let alone any leveraged product, other than the Pimco CEFs?

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Valued Contributor

Re: First came MLP then came 2X..what's next?


@ElLobo wrote:

I am, this morning, roughly 40% SDYL, 50% PFFL, and 10% cash...................Do you, or anyone else reading this thread, invest in PFFL, let alone any leveraged product, other than the Pimco CEFs?


 

 I'm not MNfish but I, fish or any other informed investor would never construct a retirement portfolio of "40% SDYL, 50% PFFL, and 10% cash" Nobody I know, nobody I know knows anybody that uses UBS levered ETN's in a retirement portfolio or any portfolio for that matter. Ever wonder why you are the only one?

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Contributor ○○○

Re: First came MLP then came 2X..what's next?

"Ever wonder why you are the only one?"

No, not really.  I only know that trolls don't care, one way or another!  8-))

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