Just finished reading Prof. Snowball's
piece on junk bonds in which much is made of the virtue of investing in junk, as opposed to "equities."
Just for fun ("Gonna turn this mother out.") I decided to back-test FAGIX versus an equal-weight widows-and-orphans portfolio of FSUTX and FDFAX not subject to rebalancing. I had no idea how this would turn out.
The Vanguard 500 is included as the benchmark.
Results since 1986 in this link. Junk has the lower standard deviation. But how many people pay attention to SD versus "Worst year I spent with this portoflio?"
Junk had the worst year versus W&O at 31.9% to 27.36%. I also notice that W&O lead on Sharpe and Sortino numbers. They also made twice as much money for you, and beat the 500 index just for fun.
How about other time periods? Prof. Snowball looks at 15 years.
FAGIX pulls slightly ahead of W&O, but still has the worst year.
And 20 years.
W&O are back in the money lead, but FAGIX pulls ahead on Sharpe and Sortino numbers.
Prof. Snowball also runs through numbers from all the periods of The Great Distortion, which I am too lazy to run. But I will run two of my favorites from MFO premium: Since COVID, and TGN. Portfolio Visualizer does not account for monthly starts, so the first test dates from 202001, and the second from 202201.
Since COVID, W&O eke out a win in money, Sharpe, and Sortino numbers. And they do much better in the worst-year category.
Since TGN,
W&O have lost less of your money. And there is something to be said for that in a period of rising rates.
A person can have more fun with this PV by adding 100% VWELX or PRWCX as the third portfolio entry.
Comments
FAGIX is a good fund that may be misclassified as HY. Up to 20% nominal can be in equities, but when high correlation of HY with equities is accounted for, it may as well be a moderate-allocation fund. So, a fair comparison may indeed be with VWELX or PRWCX.
A truer Fido HY is SPHIX and many other pure HYs.
Here is the PV runs with Month-to-Month and SPHIX added (it is so-so).
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=2CDNYo1aU7ofokbqqI3tCF
Prof. Snowball listed a number of funds in his piece. FAGIX came to mind as a match for the other two Fido funds. I could/should add FPACX to the back-tests.
The funds mentioned aren't all about junk, but I had the song in my head. So away I went.
I guess I need to read Prof.’s piece.
I re-ran Yogi’s PV test using PRWCX as bench mark and the results were as expected, except that I was surprised by the low total for HY - the effect of compounding over 30 yrs?
Should not what is a better or worse asset class depend on time period (when you need the money and for what) and starting point?
And you make an excellent point in your last paragraph. I'll add that it helps to buy something you're comfortable holding onto through the rough patches. And that gets back to your point about: When do you need the money?
PRCPX. 7.21%
TUHYX 7.83%
VWEHX 5.98%
SCYB 9.1%
FFRHX. bank loans. 8.22%
ANGL. fallen angels. 8.07%
FALN. fallen angels. 8.42%
FAGIX 5.53%
So FAGIX does not depend totally on the interest. 15% in equities.
Prof. Snowball's thesis in his column: And he chose four "Great Owls", which included FAGIX and FPACX as well as OSTIX and RSIVX, as great alternatives to only equities. All four buy more, or less, junk. I chose to run PV against FAGIX because I am not comfortable buying most bond funds whether they're buying junk, or agencies.
If David Giroux wants to buy junk, well, that's why I bought his fund. Let him worry about it. I don't need to pay above average fees to FPA.I can load up on cash myself. YMMV.
In this PV I'm looking at GLFOX versus FAGIX and FPACX. I think of GLOFX as a global version of Electric Company, Waterworks, and the railroads. So, Widows & Orphans take a ride on The Reading . . .
For those that don't follow links, GLOFX has the better standard deviation, Sharpe, and Sortino numbers, a better compound growth rate, lost less money in the worst year of holding, has less correlation to the market, and the lowest beta and highest alpha.
And here is the original W&O versus FPACX. Since July 1993 FPACX is the winnerin returns, while W&O beat FAGIX.
Here are some runs against what MFO Premium calls The Great Normalization (TGN), which they date from January 2022
First: W&O versus FPACX and FAGIX. My take away is that the fund with the best SD, Sharpe, and Sortino numbers also had the worst CAGR, worst yearly loss, and highest market correlation. YMMV
And here is W&O Ride the Rails. And it looks to me like the fund with the worst Sharpe and Sortino numbers has lost the least amount of your money. But I don't always spot things correctly. Let me know if you see something different.
Why did I run these numbers? It's the kind of thing I like to do when people say things like every. I like to dig a little deeper.