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Barron’s Fund Quarterly (2020/Q2–July 6, 2020)

 

 

Pg L4: Target-date funds [TDFs; AUM $2 trillion] have done fine – they are diversified basic portfolios and their investors tend to hang on to them in good and bad times [set-it-and-forget-it]; they are also default options in many workplace retirement plans. 50%+ of the new cashflows into retirement plans are into TDFs. More data [YTD, 10-yr, AUM, rank, allocation] are provided for 2020 funds that on average have 50-50 allocation for “through TDFs” [most] and much lower for “to TDFs” [some]. Post retirement date, “through TDFs” keep lowering stock allocation until it reaches 20-40% 7-10 years after; “to TDFs” hold it steady.

 

Pg L8: Eddie Brown [80], Brown Capital [1983- ]. 2nd oldest African-American owned investment firm [John RogersAriel is older by only 6 months]. He is credited with coining GARP [growth at reasonable price]. Brown Capital funds are small/mid-cap and are concentrated with 60-65 holdings; there is more emphasis on revenues, revenue and earnings growth and GARP philosophy. He has no plan to retire or sell the firm; he converted to ESOP ownership in 2016.

 

Pg L10: American Funds has boosted its bond funds [18# include ABNDX, RBOGX, RGVGX, HY AHITX, world CWBFX, muni AFTEX]; it is #5 in bond fund AUM [4% market share in bond fund AUM, 8.6% market share by total AUM] after Vanguard, BlackRock, Pimco, Fidelity. Bond push has been motivated by the creation of AF TDFs; it started investing mostly in corporates in 1973 and that revealed flaws in 2008 financial crisis. In 2014, it hired Gitlin from Price/TROW and he has done several high-profile hiring, set up new bond trading operations, installed BlackRock’s Aladdin risk-analytics. Its bond fund managers are evaluated on 1, 3, 5, 8 yr risk-adjusted returns, so, they are generally cautious, and somewhat skeptical of quick recovery.

 

Pg L11: Your money-market fund may not be as safe as you think. There have been 2 major reforms [2010 (on liquidity levels), 2014/2016 (new categories with different rules for gates, redemption fees and NAVs)] since the 2008 financial crisis. But m-mkt funds are showing stresses again from low rates [requiring temporary fee waivers again to maintain $1 NAV and keeping 0.00-0.01% rate] and liquidity rules. The SEC is considering a proposal where m-mkt funds can reduce the share count but maintain $1 NAV to account for negative effective yield after fees [firms cannot be waiving fees forever but that would be a sham fix]. Some of the liquidity problems in 2020 have been attributed to those reforms. Some firms such as TIAA have said that they will recoup/claw-back fee waivers in future [TIAA has also warned of negative rates in its m-mkt VAs after 1/1/21]. From March 2-23, there was an outflow of 15% of AUM in prime m-mkt funds [as investors/advisors shifted funds to safer government m-mkt funds] and the Fed established M-Mkt Mutual Fund Liquidity Facility [MMLF] on March 18. If the Fed goes from ZIRP to negative rates, that may be a disaster for struggling m-mkt mutual fund industry. Watch the shadow NAV published for retail prime m-mkt funds that may be less than $1; gates and redemption fees may be imposed if the shadow NAV falls to 99.5 or below; institutional prime m-mkt funds have floating NAVs with additional possibilities of gates and/or redemption fees. In March, BK and GS had to provide assistance to some of their m-mkt funds [in order to avoid triggering gates and/or redemption fees].

 

Pg L36: In the great rebound of 2020/Q2 [SP500 +20.42%], among general equity funds, the best were SC-growth +32.54%, MC-growth +31.74% and the worst were equity-income +15.43%, LC-value 15.98%. Among other equity funds, the best were natural resources +33.45%, sc & tech +33.06% and the worst were short funds -36.38%, market-neutral funds -2.55%. Among fixed-income funds, LT +5.78%, world income +8.91% [not very refined in Lipper mutual fund categories listed in Barron’s].

YBB
5 Replies
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Re: Barron’s Fund Quarterly (2020/Q2–July 6, 2020)

Has there been any significant change of the Vanguard Prime Money Market Fund?  

Thanks,  

gabe

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Re: Barron’s Fund Quarterly (2020/Q2–July 6, 2020)


@youth wrote:

Has there been any significant change of the Vanguard Prime Money Market Fund?  

Thanks,  

gabe


VG Prime is OK so far. Its daily/liquidity is good and its shadow NAV is 1.0003.   https://investor.vanguard.com/mutual-funds/profile/portfolio/vmmxx

But again, the caution arising from 2014/2016 classification rules is that if the shadow NAV drops to 99.5 or below, that is auto trigger for fund firms to impose gates and/or redemption fees, or rescue m-mkt fund by using their own capital [as BK, GS did in March].

Question is, will Vanguard do a rescue like that?

As I have posted elsewhere, my solution now is to use ultra-ST and ST bond funds that don't have these regulatory issues and may offer ready access with small volatility. Also, only use government m-mkt fund for checkwriting as checks can be outstanding for months and a retail prime m-mkt can freeze on you.

YBB
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Re: Barron’s Fund Quarterly (2020/Q2–July 6, 2020)

Thank you, Yogi. The TIAA MMF claims to be a "government-type" fund but the company has issued an advanced warning to partipants (investors) that the rate could go negative by the end of 2020. I rely on the MMF at TIAA as a drop-box, from which I withdraw RMD's on a monthly basis. That may have to change.

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Re: Barron’s Fund Quarterly (2020/Q2–July 6, 2020)


@Juris2 wrote:

Thank you, Yogi. The TIAA MMF claims to be a "government" fund but the company has issued an advanced warning to partipants (investors) that the rate could go negative by the end of 2020. I rely on the MMF at TIAA as a drop-box, from which I withdraw RMD's on a monthly basis. That may have to change.


Although government m-mkt, catch with CREF m-mkt VA is that it has non-$1 unit value [R3 QCMMIX unit value is 26.6979], so there was never any mention of keeping $1 NAV. The warning that one can lose money has been there already. So, TIAA will just let its price [that is net of fees] fluctuate up/down after 1/1/21 after fee waivers expire. See website note:

"You could lose money by investing in the CREF Money Market Account. Because the accumulation unit value of the Account will fluctuate, the value of your investment may increase or decrease."

TIAA hasn't said anything yet about T-C m-mkt fund TIEXX [Retirement class] that does have $1 NAV. Website note:

"You could lose money by investing in the TIAA-CREF Money Market Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so."

YBB
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Re: Barron’s Fund Quarterly (2020/Q2–July 6, 2020)

Thank you, Yogi. The MMF is still the default (automatic) location from which my monthly RMD payments are drawn. As I've mentioned, I've been using the MMA as a dropbox for funds taken from other investments, including serving as the immediate destination of my on-going (annual) TPA of my TIAA Trad funds. Possibly next year I'll just designate a bond fund to hold that cash, instead of the MMA. But I'm not sure that would be safer than the MMA -- in terms of value conservation of "banked" money.

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