FYI: Investors seeking to hedge against higher interest rates and increased volatility have other options besides traditional retail banks. Financial services companies, like State Street and BlackRock, which issue exchange-traded funds, or ETFs, tend to also do well when rates rise, says Michael Venuto, chief investment officer of Toroso Asset Management.
He says Toroso's ETF Industry Exposure & Financial Services exchange-traded fund, or ETF, is a good play for investors when interest rates and market volatility rise. The ETF, ticker symbol TETF, is up 8 percent this year, while the S&P 500 is up 1.8 percent. Answers have been edited for length and clarity.
Regards,
Ted
https://www.houstonchronicle.com/business/article/Fund-manager-Q-A-Betting-on-funds-that-thrive-as-12738423.php
M* Snapshot TETF:
http://www.morningstar.com/etfs/ARCX/TETF/quote.html

Yes they exist This is just another name for equity indexed annuities. You've seen my post in the "pension reform" thread
https://www.mutualfundobserver.com/discuss/discussion/comment/99053/#Comment_99053
From Dummies:

Since 2006, EIAs [equity indexed annuities] have undergone several changes, including a name change. Insurers began calling these products FIAs (fixed–indexed annuities) instead of EIAs, in order to avoid suggestions (and avert any accusations) that EIA contract owners were investing their money in stocks (also known as equities). Many investment professionals simply called them “index annuities.”

The cost is embedded wtihin the annuity parameters like payout rate, guaranteed minimum return, etc. So there's no explicit cost stated. These are not low cost vehicles, but it's difficult to figure out how much they are costing you.
Also, it seems that most of these annuities are capped. The good news, if you can call it that, is that the caps I'm seeing are straightforward. There can be caps where, if the market does better than the cap, you don't get anything!
Equity indexed annuities are called "fixed" because all annuities are either fixed or variable. Fixed annuities are general promises by the insurer issuing the annuity to pay a fixed amount. Here, the amount to be paid is "fixed" by the return of the index followed. The promise you get is only as good as the insurer.
Variable annuities have no particular return that is promised. Also, rather than relying upon the financial soundness of the issuer (as with an ETN), your money is segregated from the issuer and invested in a mutual fund. So your investment is arguably more secure - it's backed by the underlying assets of the fund, not by the insurer.

I've tried to describe the fund conceptually in terms of major building blocks. To come up with an explanation of its performance entails starting with a much more detailed model and then using trial and error to find a proxy bond fund that might adequately match the performance of the bonds in the portfolio.
I'm not going to go through that exercise. But I will give you some idea of other factors involved.
According to a page on DoubleLine's company website (I haven't found this detail on the DoubleLine fund site or in the fund's prospectus), the swaps used require collateral. (Generically speaking, some swaps do, others don't.) Here's the image from that site showing the need for collateral
Contrast that with the image on the fund's fact sheet that omits mentioning the need for collateral. Contrary to the image above the fact sheet states that 100% of the money invested (not just a remainder) goes into the fixed income portfolio. Since the prospectus also omits anything about using collateral, it obviously doesn't say how much collateral is needed.
So now there's a new factor (collateral) to include, one that comes alone with an unknown value (collateral percentage). FWIW, MWATX, which uses futures not swaps, typically puts up 4%-5% of the value of the derivatives as collateral (according to its prospectus). If DSEEX is using 5% collateral, then the remaining 95% of the amount invested is being invested in bonds. So one would multiply the performance of the proxy bond fund by 95%. In reality, we not only don't know an appropriate bond fund to use as proxy, but what scale factor should be used.
Then there are the carrying costs for simply holding the swaps. That appears to be the "financing rate", which is different for each swap, but tends to run in the 0.40% - 0.47% range. At least those are the rates shown for the swaps in the latest semiannual report, which is now almost six months old. So some average rate in that range needs to be subtracted from the CAPE (swap) rate of return.
Next up are the costs of acquiring the swaps. Some, like brokerage fees, can be extracted from the financial statements. Others, according to the prospectus, are simply not disclosed:

investment-related expenses not shown in the [fund expense] tables include brokerage commissions and undisclosed markups on principal transactions, which reduce the return on your investment in a Fund and may be significant. ... In cases where a Fund enters into a swap transaction or certain other transactions based on an index, the transaction pricing will typically reflect, among other things, compensation to the counterparty for providing the investment exposure. The transaction pricing also may reflect charges by the Index sponsor for the use of the Index sponsor’s intellectual property and/or index data (“Intellectual Property”) in connection with the transaction. These investment-related costs may be significant and will cause the return on a Fund’s investment in a swap transaction or other transaction based on the index to underperform the index. The terms of these transactions may change over time, potentially in response to market conditions, without notice to shareholders.

As with the carrying costs, simple subtraction is the best way to account for these other expenses. Say they totaled 2%/year, then 2% would be subtracted from the fund's expected return. I pulled that 2% figure out of the blue for a placeholder; I've no idea what these other costs total at any given point in time (the prospectus says they vary over time as well).
Finally, I'm not clear why you elected to use a PIMCO fund as a bond proxy; I might have tried out some DoubleLine funds first.
Personally, I'm content with my level of understanding of this fund, though I can appreciate the interest in proving out a model by getting numbers to match.

FYI:
Regards,
Ted
March 8, 2018
Dear WEALTHTRACK Subscriber,
Keeping track of the myriad of disruptive technologies shaking up business and the markets is a daunting task. It requires familiarity with multiple disciplines, industries and global markets. In preparation for moderating a panel on the destruction and disruptions caused by digital technologies, I was sent a collection of brief essays from the host firm, Thornburg Investment Management, a well-regarded global firm managing both fixed income and equity portfolios and funds. With their permission, I am sharing it with you on our website, WEALTHTRACK.COM. I’ll be delving into several of the topics covered on future WEALTHTRACKS, including the widespread impact of the FAANGs (Facebook, Amazon, Apple, Netflix and Google/Alphabet), Artificial Intelligence (AI) and robotics.
On the program this week, while public television continues its spring fund raising drive, we will be listening to part 2 of our rare annual outlook with Ed Hyman and Matthew McLennan. Last week we focused on the U.S. economy and markets. This week we expand our horizons to the world at large. Hyman’s “global growth accelerating” theme has definitely picked up steam and McLennan’s insights on political and financial risks have also proven prescient.
For those of you not familiar with Ed Hyman, he is the founder and chairman of Evercore ISI and the record holder for being voted the number one economist on Wall Street for an incredible 37 years in the Institutional Investor’s survey of professional investors because of his must read, brief and easily understood daily reports on trends in global economies and markets.
Matthew McLennan, another WEALTHTRACK regular over the years, heads up the Global Value team at First Eagle Investment Management where he is also portfolio manager for several funds, including the flagship First Eagle Global Fund, which he took over from legendary value manager Jean-Marie Eveillard a decade ago. McLennan is a worthy successor. The global fund has been a top performer among world allocation funds for years and is known for its superior risk-adjusted returns.
Thank you for watching. Have a great weekend and make the week ahead a profitable and a productive one.
Best regards,
Consuelo

FYI: While the strategy of investing in internet-related companies will likely always be first associated with the dot-com era, the long-lived bull market has proved to be just as strong a period for a sector that has influenced nearly every aspect of the economy.
Friday marks the ninth anniversary of the financial crisis bottom, and since that period—by one measure, the start of the current bull market—internet stocks have been among the best performers on Wall Street.
Regards,
Ted
https://www.marketwatch.com/story/the-best-sector-of-this-bull-market-is-the-greatest-investment-story-ever-told-2018-03-08/print
M* Snapshot PNQI:
http://www.morningstar.com/etfs/XNAS/PNQI/quote.html
M* Snapshot FDN:
http://performance.morningstar.com/funds/etf/total-returns.action?t=FDN&region=USA&culture=en_US

@LLJB has done a great job in describing DSEEX, both here and in earlier threads such as this one.
I agree that the use of swaps doesn't significantly affect the risk in and of itself. I believe that the swaps used by the fund involve only net performance. (See, e.g. equity swap into here.) That is, the fund gets an income stream equal to the performance of the index (if the index goes up 1% it gets 1% of the swap value) while it pays the counterparty a fixed rate.
So if the index goes up more than the cost of the swap (usually the case) the fund nets some income. If the index goes up less than the cost of the swap (or even goes down), then the fund owes the other side some money, net.
All that is at risk with the swaps is the net income since the last time the two sides settled their debts (called a "reset"). These resets happen periodically so there's just a limited amount of income at risk should the other side default.
IMHO the fund's added risk comes from its use of leverage. Not in the traditional sense of borrowing money to invest, but in using $1 of investor's cash to gain $1 of exposure to the index and $1 exposure to the bond market. That's where the derivatives come in. The risk is from the leverage, not the derivatives. The derivatives are simply a means to that leverage.
Almost no cash is needed to own or service the derivatives; the vast majority of the cash is used to invest in a bond portfolio. Should both equity and bond markets drop, this 2x exposure can hammer the fund. (Should both go up, the fund can soar.) As wxman123 noted, TANSTAAFL.
As DoubleLine writes:

Each $1 investment seeks to obtain $1 of exposure to the CAPE® Index via swaps and $1 of exposure to the underlying portfolio of bonds managed by DoubleLine. ... This portoflio has no financial leverage because no money is borrowed .... There is implicit economic leverage due to the use of unfunded swaps ....

https://doubleline.com/dl/wp-content/uploads/6-30-2016_CAPEStrategy-10FAQ_JSherman.pdf

Written a few years ago, but I pretty good explanation of why not to worry...

Worst case scenario? The US dollar might depreciate against some other currency. That’s a long-shot but it could happen. Will that push up US interest rates? Doubtful. The US Fed determines the short rate, and the global search for safe assets plus expectations of future US Fed policy determines the longer rates.
Guess what. As we head into the next GFC (Global Financial Crisis), the US continues to look awfully good. Don’t bet against the dollar or US interest rates. Uncle Sam wears the biggest pants in the world.

Source:
china-dumps-us-treasury-bonds-paul-krugman-inches-toward

That's putting it mildly, to say the least. He had the best economic/financial mind in the building....

Just trying to be clear on things here ...
- You're planning to take money from your traditional IRA in 2019 to pay taxes on your 2018 Roth conversion. (I guess this from your saying you'd use RMD money, and there's usually no RMD on a Roth.) So far, so good.
- You're planning to take 4% (of what, the traditional IRA?) in 2019.
-- The "usual" 4% rule of thumb is for how much you can safely spend in a year (including "spending" on taxes); it's not an amount you must spend, or even move from investments to cash. Don't confuse RMDs, which are amounts that must be withdrawn from traditional IRAs - that's a tax event - with financial planning - how much money you have available to live on in retirement.
-- The first RMD is usually 1/27.4 = 3.65% (if your 70th birthday is the same year you turn 70.5) or 1/26.5 = 3.77% (if your 71st birthday is the same year you turn 70.5). You don't have to withdraw more than that from your IRAs, and you don't even have to sell any investments (you can just move that amount of securities from your traditional IRA to your taxable account).
- You'll owe taxes in April 2020 for whatever you withdraw from your traditional IRA in 2019.
- You'll be able to withdraw from your Roth tax-free, anytime, tax-free the money your converted in 2018 to your Roth tax-free at any time. But if you dip into the Roth earnings (which happens only after you withdraw all the converted moneys), you'll owe taxes on them unless you wait until Jan 1, 2023 (the beginning of the fifth year after conversion).
- Going forward, you're planning to convert more money each year. That will work if you take your RMD for the year before you do the Roth conversion.

FYI: Sheila Bair has demonstrated that she’s not afraid to be the lone person flagging potential problems. The former head of the Federal Deposit Insurance Corp. is best known for her early warnings about the subprime mortgage market, and she’s still spotting problems in the financial system.
Regards,
Ted
http://www.cetusnews.com/business/Sheila-Bair-Sees-the-Seeds-of-Another-Financial-Crisis.SJmhOxcDOf.html

FYI: During PBS Pledge this week we are revisiting our annual exclusive, Ed Hyman, Wall Street’s #1 ranked economist for a record 37 years shares his outlook for the U.S. joined by leading value manager Matthew McLennan. Watch that episode
again here.
How do you raise financially responsible children in an instant gratification, consumer-oriented culture? Award-winning personal finance journalist Jonathan Clements shares his common sense How to Think About Money approach.
Regards,
Ted
https://wealthtrack.com/financial-smarts-jonathan-clements-tips-to-raise-financially-savvy-children/

FYI: The U.S. housing market’s thunderous crash a decade ago helped bring the global economy and financial system to their knees. But those dark days seem like a distant memory now, as For Sale signs sprout on suburban lawns—a sure sign of spring—and Open House events in many locales attract a crush of prospective buyers.
Regards,
Ted
http://www.cetusnews.com/business/The-Housing-Market’s-Rebound-Is-Far-From-Over.H1XFBhiPOf.html

@Maurice This is in Warren's letter to BlackRock's Fink:

In your January 12, 2018 Annual Letter to CEOs, you explained that companies have a duty to positively contribute to society. In that letter, you called for a "new model of shareholder engagement - one that strengthens and deepens communication between shareholders and the companies that they own." You wrote that, "[ to] prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society." Now it's time to put your money where your mouth is.

Note the word "engagement." Warren is asking Fink to be true to his own words and those words in recent months from Fink's own mouth and pen have been about engagement, not divestment. Many articles have been written about Fink's recent letter that Warren is citing in which he promises to engage with companies, including this one:
https://nytimes.com/2018/01/15/business/dealbook/blackrock-laurence-fink-letter.html
BlackRock's policies about the importance of engagement are also clear:
https://blackrock.com/corporate/about-us/investment-stewardship
I'm fairly certain you yourself have commented on Fink's stance, and it's well known that as an index fund provider that has to track a benchmark it is far easier for BlackRock to engage than divest. Engagement has been its longstanding claim and now Warren wants the company to live up to that claim. There is no reading between the lines here.

Hi, Derf.
My portfolio review is a victim of my problems with the Morningstar website. I can't even see my portfolio through Chrome, my default browser, and I've been exchanging (amiable and patient) notes with them for six weeks about it. That keeps derailing me, at least in part because I become frustrated and stomp around rather than switching to Firefox or Edge or whatever. Two other stories are similarly in limbo because there are some things that their database (when it's working) facilitates that ours does not. Sorry.
Hi, JoJo.
If you want to pick that bone with the CFA and/or CFA Charterholder in question, drop a note to [email protected].
David

Not picking any bones, just try messing with y'all. But as a CFA Charterholder myself, I know all too well from the curriculum that calling oneself a Chartered Financial Analyst is a no go.

"And if the individuals involved were Chartered Financial Analysts"
There is no such thing. If you hold the CFA designation, you are a Chartered Financial Analyst Charterholder, NOT a Chartered Financial Analyst.
:)

Reminds me of Motif investing; build your own, eh?
https://www.motifinvesting.com/motifs#catalog=overview

From the article: A low-vol fund gives you more of sleepy Microsoft (MSFT)
>>> Things change, times change, managers change. Microsoft is not currently a sleepy company.
Sample: growth to value and value to growth:
---Durant-Dort Carriage Company was a manufacturer of horse-drawn vehicles in Flint, Michigan. Founded in 1886, in 1900 it was US's largest carriage manufacturer.
This very successful business made the partners rich men and it became the core on which William C Durant and J Dallas Dort began to build General Motors.
Durant sold out of this business in 1914 and it finished carriage manufacture in 1917.
>>>With the assumption of being able to purchase stock in the above, one may suspect those who poo-poo'd the demise of carriages and those who poo-poo'd rise of the motor car. Who and when someone may have bought or sold shares in either organization would have allowed them a more complete understanding of growth becoming value and value becoming growth scenarios, yes?
Below chart is factor investing, too. Large cap value vs large cap growth, from 2 different vendors. Simple etf models, although I don't know about internal holdings changes over the years. In particular, since early 2016 value can not find as many friends.
http://stockcharts.com/freecharts/perf.php?JKE,JKF,IVW,IVE&p=6&O=011000
I will guess that active individual investors are/were 50% inclined to be "factor or smart beta" investors before the terms became fashionable, eh? One makes personal investment choices for whatever reasons. One makes choices based upon many "factors" in their own world of risk and knowledge.
A few possible factors might include:
---age
---financial status, being employed and young with a good wage and prudent personal financial habits; being near retirement or being retired with a comfortable financial position
--- How hungry are you? = I'm young and hungry, I'm almost retired and don't want to lose what I've worked so hard to attain or I'm retired, and don't want to lose what I've attained, but still need to be invested in something reasonable. Among all of this at any age level is the aptitude/attitude involvement which may lead one to a more hands off approach of a plain joe/jane balanced fund style of investment or the Robo advisors.
One sorts and searches for whatever investment style floats their boat of comfort.
Factor or smart-beta investments offer more choices and hopefully not more confusion.
In closing, I'll offer the below partial lyric as the "theme song" for the ever evolving world of etf choices. Build it and they may come, eh?
Kinda like the simple lyric of this Dave Clark Five song (I Like It Like That) from the mid-60's:
Come on (come on let me show you where it's at)
Ah, come on (come on let me show you where it's at)
Whoa!, come on (come on let me show you where it's at)
I said the name of the place is I like it like that
The music is all around us, all we have to do.....is listen.
Take care,
Catch

FYI: One of my father’s friends is a Scottish immigrant named Bill. He doesn’t have time for fools. “Could you talk to Bill about investing?” my father had asked. “He just fired his financial advisor.”
At the time, I was visiting my parents. After dinner, Bill dropped by. As Bill poured himself a beer he said, “I’ve had three different investment guys in the past five years. I fired the third guy last week.”
Regards,
Ted
https://assetbuilder.com/knowledge-center/articles/would-you-fire-an-investment-manager-who-averaged-29-percent-per-year

"But without any public disclosure of the assessed price or public disclosure of an unrealistic stale consensus price, there is much more limited liability and less of a paper trail for lawyers and prosecutors to use in pursuing the parties guilty of fraud or incompetence."
The amount of liability (losses due to mispricing) does not depend on disclosure. What is most affected by lack of disclosure is the probability of being caught and held accountable. The paper trail will exist with or without public disclosure - funds must be able to provide that for SEC compliance inspections. That data should be subject to discovery.
For example, here's an SEC compliance alert from July 2008:

The SEC staff conducts compliance examinations of ... investment companies ... to determine whether these firms are in compliance with the federal securities laws and rules ...
Many high yield municipal bond funds invest in securities that trade in the secondary market on an infrequent basis or never trade in the secondary market. ... Further, liquidity determinations for a high yield municipal bond fund are critical to ensure that the fund is able to redeem fund shares within seven days, as required under the Investment Company Act. ...
[E]xaminers: analyzed the credit quality of portfolio holdings; reviewed illiquidity levels as determined by fund management; compared sales prices to prior day valuations; compared bond valuations provided by pricing services to market transaction data; ...
[E]xaminers noted the following: ... Disclosure. High yield funds often did not disclose the increased risk with respect to liquidity and valuation, as required. For example, examiners commented in situations where the percentage of illiquid securities held by a fund dramatically increased and the fund did not disclose: that a dramatic increase in the percentage of the fund invested in illiquid securities occurred and the risks associated with such an increase; what effect, if any, the increase may have on the fund’s ability to redeem investor shares in a timely manner consistent with the federal securities laws; and what steps, if any, the fund may take to dispose of some of the illiquid securities to bring the percentage within a range appropriate to the circumstances.

One takeaway - even the (relatively simple to compute) illiquidity percentage was often not disclosed, even though such disclose is already required.
Every once in awhile there's merit in the position that the government should enforce existing regulations before adding new ones. What's the point in requiring funds to disclose what at best are noisy estimates of liquidity slices (3 day, 7 day, etc.) - estimates that would merely enhance the value of illiquidity percentage data - when the latter aren't being properly disclosed?
As to astute financial advisers making use of this "additional" information: how many advisers are making use of the new disclosure of (mark-to-market) NAV values for prime MMFs?

I prefer the risk of one or two examples of intentionally fudged or incompetently assessed numbers over a completely inaccurate consensus or a black box of ignorance. If you think about the case of valuing illiquid Uber private equity for instance, one approach would be to merely maintain the purchase price of the security on the books no matter what market conditions are. This was not uncommon in the past. Another approach would be to take the latest sale's price of the security the last time it traded even though that price is stale and could be months old and much could've changed in the interim. Managers instead use a fair value system in which they generally hire an independent third party to assess the value of the illiquid asset based on current market conditions. When they screw that assessment up or intentionally fudge the assessment, there are legal ramifications that often get resolved in court. But without any public disclosure of the assessed price or with instead public disclosure of an unrealistic stale consensus price, there is much more limited liability and less of a paper trail for lawyers and prosecutors to use in pursuing the parties guilty of fraud or incompetence.
Yes, you could argue that the average retail investor will never look at liquidity disclosures. Indeed, the average retail investor cares only about performance and now more recently fees. But professional analysts could use the data at places like Morningstar to come up with liquidity ratings for funds. The SEC can certainly used the data for its investigations. And institutional investors and investigative journalists can use the data as well. Financial advisers worth their salt most certainly could use the data so even if their clients don't care about it, they should and alert their clients if there is a problem.

He also seems to like commodities. Anyone have a favorite commodity fund? PCLDX has crossed my radar.
gundlachs-favorite-idea-in-the-financial-markets-today-is-commodities