@WABAC Thanks for the dinky linky. This article provides a good discussion regarding how CLOs are structured. It also lays out a scenario in which banking sector investment choices could potentially put our financial system at risk of major disruption once again.

Dinky linky.
The point being that they are the new CDO's. And banks own more of them than may be good for their health.

Since 2008, banks have kept more capital on hand to protect against a downturn, and their balance sheets are less leveraged now than they were in 2007. And not every bank has loaded up on CLOs. But in December, the Financial Stability Board estimated that, for the 30 “global systemically important banks,” the average exposure to leveraged loans and CLOs was roughly 60 percent of capital on hand. Citigroup reported $20 billion worth of CLOs as of March 31; JPMorgan Chase reported $35 billion (along with an unrealized loss on CLOs of $2 billion). A couple of midsize banks—Banc of California, Stifel Financial—have CLOs totaling more than 100 percent of their capital. If the leveraged-loan market imploded, their liabilities could quickly become greater than their assets.

There's more at the link. Check it out. Buy a subscription if you can afford it.

Perhaps an insightful article from Barrons would be more informative. Joyce Chang is the Chair of Global Research at JP Morgan. Her comments on the impact of COVID pandemic are well articulated. Also some suggestion on investment opportunities at the end of the article.

Question: You’re not predicting outstanding returns from equities either.
Answer: No, but you will have some returns. The traditional 60/40 equity/bond split, which earned 10% a year over the past 40 to 50 years, is now down to 3½%. Even if you’re tilted to equities, you’re still not going to get 10% again. You’re going to get something below 5%, but investors really have to contemplate what their overall asset-allocation parameters will be. In a world of zero yields, Is 80/20 the way to go? Asset classes that are a hybrid between “safe” bonds and equities—such as high-yield bonds and loans, collateralized loan obligations, commercial mortgage-backed securities, convertibles, and equity and mortgage REITs—offer equity-like returns. There’s a case for emerging market debt, because I think yields will have to come down further in emerging markets as well. China is going into [J.P. Morgan’s global bond] index this year, and our longer-term view is that China is going toward zero yield.

How the pandemic will change financial markets forever

https://www.advisorperspectives.com/articles/2020/08/05/muni-yields-hit-lowest-since-1952-as-fiscal-crisis-tests-a-haven?topic=covid-19-coronavirus-coverage
Muni Yields Hit Lowest Since 1952 as Fiscal Crisis Tests a Haven
by Amanda Albright, 8/5/20
/America’s municipal bondholders have never been paid so little for taking on so much risk.
The yields on state and local government bonds have steadily dwindled over the past month, even as the resurgent coronavirus pandemic is threatening to prolong the deep recession that’s dealing a financial setback to borrowers in virtually every corner of the $3.9 trillion market./
Anyone buy more munis recently? Maybe one of safer bets out there. More may have jumped ship to munibonds

Could surge 30%!? Seems unrealistic to me. As a counterweight I offer the editorial by Ian Bremmer from Time magazine: The Next Global Depression Is Coming and Optimism Won’t Slow It Down
“This liquidity support (along with optimism about a vaccine) has boosted financial markets and may well continue to elevate stocks. But this financial bridge isn’t big enough to span the gap from past to future economic vitality because COVID-19 has created a crisis for the real economy. Both supply and demand have sustained sudden and deep damage. And it will become progressively harder politically to impose second and third lockdowns.”

Stable value funds ... “invest in both short- and intermediate-term securities and follow the traditional concept of investing where the value of money over time generates a higher yield,” notes John Faustino, chief product and strategy officer at Fi360 in Lawton, Michigan. “They tend to hold investments that are slightly less liquid and, as a result, have a higher yield. Plus, they have an insurance wrapper that protects the value of the assets should there be a fluctuation or a decrease in the assets’ value.”

https://www.plansponsor.com/in-depth/choosing-stable-value-money-market-fund/
Here, the insurer is NY LIfe.
Safety? NY Life is one of two insurers rated as highly as the US Treasury by all four major rating agencies. It would be rated even higher, except being a financial institution, S&P figures that if the Treasury collapses, it will drag NY Life down with it. (There are two non-financial companies with higher ratings than the Treasury.)

Bonds at current world-wide rates are the nearest thing to poison (IMHO). Than again ... most financial assets appear overpriced. A sign of the times. Global bond funds (which include U.S. issues) and International bond funds (ex-U.S.), like other bond funds, are affected by credit quality, duration, maturity and the fund manager’s expertise at analyzing quality - particularly for “non-rated” bonds. Additionally, these funds also often employ derivatives - not easy for most investors to evaluate in terms of risk.
Expenses are particularly important to bond funds. As a proportion of return, fees represent a higher % and therefore affect return on investment to a greater degree than for equity funds. Hedged or Unhedged? It’s a significant consideration. Unhedged funds tend to experience wider (also “wilder“) swings in value, but should protect better against a depreciating dollar. Most of these funds hedge in varying degree rather than being 100% hedged / 100% unhedged.
As your prospectus should state, non-U.S. investments (including bonds) generally are subject to higher expenses and greater risk than U.S. domiciled holdings.

@rfono -- there was a writeup in one of the financial / investing journals about D&C following the 2008 calamity. D&C allegedly improved their process by bringing fixed income committee members / insights in on stock committee selection process.
I am reminded of something I believe David wrote about D&C (paraphrased): "...if these guys can't get it write, then we should all just go home and index...".
I think as an active shop, in terms of integrity and process they're likely top 10% (compared with a Fairholme Fund, or Royce & Friends/Partners/Associates). Been a huge fan of D&C and Oakmark, among others. Oakmark has certainly taken it's lumps. I think with active, since the strategy can underperform in the short an medium terms you have to go with process.
Not a huge fan of the AUM grab which is evident at D&C and others, but to some extent that goes with the reasonable fees.

Them starting an EM fund makes sense to me. Most pundits believe there is more upside for EM stocks going forward. I assume it will have a value tilt like all their funds since that is their forte. That likely means heavier financial stocks I would think.
I like the global balanced fund idea too.

@Catch22 -
The 39% YTD return for long duration zero coupon bonds is eye-catching. In seeking to enhance my cash allocation with some speculative plays last March I attempted to seek out the best risk / return possibilities in my judgment ... Sorry - But capital appreciation from long-dated “zeros” or other bonds isn’t something that comes to mind when I attempt to sort out relative risk-reward scenarios in the current financial environment. Not back in March. Not today. Others may arrive at different conclusions.
-
PS - Thanks @Catch22 for linking the chart. You’re my #1 bond guy and chart guy here. I hope you were able to pocket some of those great returns from bonds the past few months!

This daily update of economic and stock market trends used to require a subscription to the Wall Street journal, but after 8/1 is a stand alone daily email. For $135 a year it is a very useful source of detailed information ( all in chart form) on all sorts of financial and economic trends and worldwide data. He also has "food for thought" section that will tell you one day, for example, the relative price of cannabis nationwide, or each state's gas tax.
I have found it very useful especially regarding interest rates, economics and trends in money flows across the world
https://thedailyshot.com/the-daily-shot-sample-newsletter/

So many great suggestions. My thoughts, overall, are that the hands-on experience grandson will enjoy with his initial nest-egg will motivate him to engage in financial conversation and study on his own. Books? I get lots from folks around the holidays. Seldom do I ever read any of them, as I’d rather “set my own (reading) table“ so to speak. Plus, many loving relatives (nieces, nephews, etc.) don’t realize that 90% of my reading today is on tablet devices and most of the rest thru audiobooks. Because of my ancient and grizzled appearance, younger people who don’t know me very well must assume I still read paper books. Excuse the digression. But, often telling someone they should read a particular book (or do anything else) achieves the opposite effect..
@MikenM (and perhaps others) referenced technology as an inviting investment. Not a bad thought. However, tech is very diverse area. Some “hot” areas from the not too distant past like hand-held calculators, VHS players, Commodore computers and “cordless“ (land-line) phones are nearly extinct. My guess is in 30 years, when grandson turns 50, the really hot areas will be lunar and interplanetary mining (and related services), infrastructure for underwater habitat, and solar powered autos & trucks. So don’t get too wedded to any single technology. Truth be told - it’s hard to remember when “technology” in some form wasn’t in vogue. Likely, the horse-drawn plough underwent many “technological improvements” during its time. And, as broken arms and fingers testified, the advent of battery powered self-starting farm tractors and autos was a huge technological leap.

SUPPLEMENT DATED MARCH 31, 2020 TO THE SUMMARY PROSPECTUSES AND PROSPECTUS FOR THE GRANDEUR PEAK EMERGING MARKETS OPPORTUNITIES FUND, GRANDEUR PEAK GLOBAL MICRO CAP FUND, GRANDEUR PEAK GLOBAL OPPORTUNITIES FUND, GRANDEUR PEAK GLOBAL REACH FUND AND GRANDEUR PEAK INTERNATIONAL OPPORTUNITIES FUND (EACH A “FUND,” AND TOGETHER, THE “GRANDEUR PEAK FUNDS”) DATED AUGUST 31, 2019Effective April 1, 2020, the Grandeur Peak Emerging Markets Opportunities Fund, Grandeur Peak Global Opportunities Fund, Grandeur Peak Global Reach Fund, and Grandeur Peak International Opportunities Fund will reopen to all shareholders.Also, effective April 1, 2020, the Grandeur Peak Global Micro Cap Fund will reopen to all shareholders who purchase directly from Grandeur Peak Funds. The Fund remains open through financial intermediaries to shareholders who currently hold a position in the Fund. Financial advisors with clients in the Fund are able to invest in the Fund for both existing as well as new clients. The Fund also remains open to all participants of retirement plans currently holding a position in the Fund.

Yes, they opened back in early April. David wrote about it in his monthly commentary.
https://www.mutualfundobserver.com/2020/4/
International Stalwarts is closed to third party financial intermediaries effective June 10.
https://www.mutualfundobserver.com/discuss/discussion/56200/grandeur-peak-international-stalwarts-fund-to-close-to-new-investors-via-financial-intermediaries
I picked up GPMCX for a non-taxable account.

"The funds are not required to disclose detailed data about the size of their bets"
"Long before the turmoil this spring, the Financial Stability Oversight Council, established by Dodd-Frank, had repeatedly identified hedge fund leverage as a risk."
“These strategies we thought we saw seemed an awful lot like the Long-Term Capital Management strategies"
"Early in 2017, Mr. Mnuchin, a former hedge fund manager, assumed control of the Financial Stability Oversight Council and the hedge fund working group was deactivated."
From "swamp" to stinking cesspool of corruption.

Vanguard Wellington VWELX is open to those who invest directly with the fund. They are also able to make additional purchases.
From July 1, 2020, prospectus:

Important Note Regarding Vanguard Wellington Fund
Vanguard Wellington Fund will be closed to all prospective financial advisory,
institutional, and intermediary clients (other than clients who invest through a
Vanguard brokerage account).
The Fund will remain closed until further notice and there is no specific time
frame for when the Fund will reopen. During the Fund’s closed period, all current
shareholders may continue to purchase, exchange, or redeem shares of the
Fund online, by telephone, or by mail.

FWIW, and this is not advice, I'd consider it a hold or slight sell.
As I asked in a recent thread on PIMIX, have your reasons for holding it changed? It's a 2x fund, 100% stock exposure + 100% bond exposure. That's always been true, it hasn't changed. If that was an appealing concept, it should still be. That fact that the some risks recently manifested shouldn't change one's perceptions - the idea of risk is that sometimes bad things actually do happen.
If one bought it because one thought that an index-ish fund, a "smart beta" could beat market returns, then one should examine why one believes (or believed) that. Is this time really different, or is the market simply going through a different phase?
Note that I'm not the one calling the CAPE index smart beta - Doubleline is. Doubleline acknowledges that pre-2012 performance of the index is just backtesting; and that Barclays is motivated to use to that present the index in the best possible light:

Shiller Barclays CAPE® U.S. Sector Total Return Index..., a non-market cap-weighted, rules-based (aka “smart beta”) index.
...
Pre-inception index performance refers to the period prior to the index inception date (defined as the period from the “Index Base Date” (September 3, 2002) to the “Index Live Date” September 3, 2012)). This performance is hypothetical and back-tested using criteria applied retroactively. It benefits from hindsight and knowledge of factors that may have favorably affected the performance and cannot account for all financial risk that may affect the actual performance of the index. It is in Barclays’ interest to demonstrate favorable pre-inception index performance. The actual performance of the index may vary significantly from the pre-inception index performance.

From the same 2019 page as cited previously.
The reason I might consider selling the fund if I owned it is because something has fundamentally changed - interest rates. Even with the use of swaps, the leverage to get 100% bond exposure is not free. That presents a hurdle, small in a normal interest rate environment, but significant in a near ZIRP world.
Compare and contrast three large cap oriented 2x (equity + bond) funds: PXTIX, DSENX, and MWATX.
Historically, PXTIX has performed as promised, beating its benchmark, the Russell 1000 Value, by half a percent for the past five years (in a low interest environment), 2% over ten years, 3% over 15. But falling about 1% short YTD.
DSENX, excluding this year, beat CAPE by 2% in a couple of years, roughly matched CAPE in a couple, and then a -1% year followed by a +1% year. That's around a half percent a year, until this year, when it looks like it made a bad bond call. (To see the blow by blow comparisons, use this page, and then add CAPE as a fund to compare with.)
It's fair to compare CAPE with the S&P 500, since that's the universe from which it is choosing sectors. M* shows that CAPE and DSENX over their lifetimes, more or less (10/31/13 to present) to have done better than the S&P 500. Both have cumulative returns around 130% vs. 110% for the S&P 500. More recently (3 years or less), they've underperformed. Whether this is just a market phase and that their outperformance will resume is fodder for a broader discussion about smart beta.
MWATX is instructive because it doesn't use smart beta, just a 2x strategy. It significantly underperformed the S&P 500 in 2008, not catching up to the S&P 500 until the end of 2016. It took a much lighter hit this year, and is now within 1% of the index on performance since Feb 20. IMHO this shows that the leveraging works, but there's real risk and one needs to be patient. Also, it's an extremely tax-inefficient strategy.

Hello @bee,
I’ve been an infrequent poster but have been snooping on MFO for some time. In 2002, after the dotcom implosion, I crafted an Excel file to keep track of our (with DW) investment accumulations. I would track the bi-weekly changes, as well as the starting totals on January 1st of each year.
As we got closer to retirement, I calculated our current expenses and projected a retirement budget for comparison. The retirement budget had/has two versions = “Frugal Lite” and “Frugal Extreme.“ With those numbers, I then calculated the taxes to add to this total number. From this number I calculated the percentage passive income we needed to offset this total expense need. I calculated a 2.5%, 3.0%, and 4.0% yearly return. I use 2.5% as my S.W.A.N. figure.
I then projected the social security we would each receive and subtracted that amount from the total expense budget. The remaining balance was the amount our portfolio would need to generate each year. When 2.5% would cover this cost, I believed that I would/had come to a place I considered - “financial independence.”
All of this data is the “Rube Goldberg” that comes down to the final number. That is, the difference between what is needed for living expenses & aspirations, and how much our portfolio generates. My concern is that this number be on the “positive” side of the ledger even with withdrawals (RMDs, etc.). If it should dip to the negative, then we would need to shift our expenses from the “frugal lite” to the “frugal extreme“ budget.
I am in my 3rd year and my DW her 6th year of retirement. So far so good.
Best to all,
Brian

Interesting comment from hedge fund manager, Leon Cooperman:

Risks for the market
The nation's rapidly growing national debt is among Cooperman's biggest concerns.Instead of whittling down the federal deficit when the economy was strong, Trump directed the federal government pile on even more debt to pay for massive tax cuts and spending surged, which meant the country entered the coronavirus crisis in rough financial shape. Now, the national debt is exploding as Washington scrambles to rescue the US economy from the shock of the pandemic.
"I am focused on something the market is not focusing on at the present time and that is: Who pays for the party when the party is over?" Cooperman said. The deficit is growing at a rate "well in excess of the growth rate of the economy," he added. "To me, that means more of our nation's income will have to be devoted to debt service, which will retard economic growth in the long term."

https://cnn.com/2020/07/20/investing/leon-cooperman-stock-market-overvalued/index.html

I considered investing in PIMIX a while ago. In the multi-sector bond category, PIMIX had generated top-decile trailing returns with below average volatility. The fund's non-agency mortgage sector investments accounted for much of the strong performance after the financial crisis. However, the non-agency mortgage sector is much smaller today. Yet, Pimco refuses to close PIMIX which currently has ~ $120 Bil AUM. Matter of fact, I don't believe that PIMCO has ever closed a fund because it grew too large. This compaoblony policy is not in an investor's best interest.

The above is a good encapsulation of M*'s latest analyst review (not paywalled):
https://www.morningstar.com/articles/986480/why-pimco-income-remains-among-the-best
With the better financial reporting, "trust but verify" is good practice. (With much financial reporting, the "trust" part isn't justified.)
Jacobson writes that "Pre-financial-crisis supply in the [nonagency residential mortgage] sector has been shrinking." Those securities are often referred to as legacy RMBS (i.e. securities issued pre-financial crisis). And the statement's correct. However, the post GFC RMBS 2.0 sector (with stricter borrower guidelines) is growing. Though it is still minuscule; I don't want to suggest otherwise.
https://www.marketwatch.com/story/credit-suisse-and-citigroup-join-other-major-banks-in-mortgage-bond-revival-with-a-twist-2019-08-20
In late 2017 Jacobson (along with lead writer Miriam Sjoblom) was making the same point about a shrinking supply, describing the post GFC years as "a once-in-a-career opportunity. " They also commented even back then on the fund size (more on that below).
A bit concerning is Jacobson's statement that "Pimco still likes the sector for its return potential and modest volatility: ... they totaled 37% as of March 2020." This seems to be overstated.
According to M*'s portfolio page (old-style version) non-agency RMBSs amounted to 8.57% (out of 120% bond exposure) of the portfolio. The largest sector was agency MBS pass throughs at 40.58% (out of 120%), followed by asset-backed securities at 33.63% (out of 120%). All as of March 31, 2020.
According to the fund's annual statement, summary section, non-agency MBSs constituted 19.5% of assets (out of 100%), and asset backed securities constituted 12.8%. We report, you decide :-)
PIMCO says that securities (substantially all are bonds) constitute 154.5% of assets. And it reports non-agency MBSs constituting 30.3% of assets. So the non-agency RMBS percentage of securities (out of 100%) is, according to PIMCO, 30.3%/154% = 19.6%, or about what was reported in the annual statement's summary.
Regarding size: current size is $120B according to PIMCO ($117B according to M*). Jacobson made the same complaint about bloat in his 2018 analyst report (free) entitled "Is PIMCO Income Getting Too Big". According to that year's annual report, the fund's assets (all share classes) totaled $112B, or about the same size as now. But it had grown from about $69B the year before.
Mitigating that, Christine Benz (M*) comments that (at least with respect to vanilla bond funds):

managers who use derivatives to express their market outlooks may be able to successfully manage more girth than managers who focus more on bond-picking to make a difference. PIMCO Total Return and its various clones, for example, were able to deliver peer-beating returns for many years even though the fund grew too large for bond-picking to make a significant difference in its returns. At its peak, PIMCO Total Return had nearly $300 billion in assets, and Gross managed various pools of money in that same style for other entities, too.

PIMCO's funds have their issues, but so far they seem to have handled them better than I would have expected. I might put the fund on a watch list for more problems. But as I wrote above, if I had reasons before for liking the fund, I would examine those reasons before jumping ship.