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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

Anybody use any hedging or shorting?
"It’s about being able to stay near fully invested - even at an advanced age - and doing better than you would if parked 100% in cash (or cash-like investments)"
You are now going to the other extreme of only cash. There is a lot going on between 0% to 100% stocks. Your goal is to stay invested, my goal is different.
Let's explore several questions
1) How comfortable are you with JHQAX? The following question is the most revealing, what % are you going to invest in JHQAX for the next 20 years? I have more confidence investing in 50/50 PRWCX/VWIAX for many retirees that it meets their goals. In fact, I don't even trust PRWCX, because I don't know how long Giroux will be in charge. This is why my wife has instructions to invest in 3 funds if I'm gone, 2 indexes and VWIAX because I can trust them for decades.
2) You made a good observation, DODBX lost 33% in 2008. But why stop there, stocks+bonds lost over 15% at the bottom of 2022, and many lost over 10% by year-end. In 03/2020, many bond funds lost 10% and stocks over 30% at the bottom. Are you going to get rid of all of them?
3) You made another good point "the various approaches attempted by funds are unpredictable "
Bingo. and why I research it for many years. I talked to many people, especially investors who have enough, and most told me they don't want to ever lose more than 10% from any last top, but they still want their portfolio to make a decent return. They must give up either performance or lower risk.
So, just my opinion, good timing/trading is the only choice IF you can do it. Timing doesn't have to be all or none, you can trade 20-30-50%. BTW, I'm almost sure that Fred was probably in high % in MM for months, just like I did in 2022. When markets don't make sense, I'm out. I don't trust any funds/managers and I don't believe in relative performance, only absolute. If 50/50 PRWCX/VWIAX lost about 10-11% in 2022, it doesn't comfort me compared to -18% for SPY. I don't tolerate this decline.
Another subject we must discuss is how much you have in retirement and let's assume no pension. Smaller portfolios must be at a higher % in stocks to survive. WTF portfolio can be in 20/80 to 80/20. The biggest problem is in the middle.

FD1000 July 2023 in Other Investing
Matt Levine: Stock Fund- But You Can’t Lose Money !
I heard that line late one night. or early one morning, at the Marina Safeway towards the end of the 90's. One stocker talking to another: "If they start to go down, you just sell."
I have a friend who used to live a block from there. Gave me a nice place to crash. At one time that Safeway had a reputation as a meet market. Didn't know all the wannabe traders hung out there.
It was just two young people stocking shelves. And I was in the next aisle over, and young myself then. I worked across the street at Fort Mason for two different orgs over 20 years or so. The hours I was on seldom matched up with the meet scene.
But I heard about it.
I remember the neighborhood fondly. Spent many an hour, and dollar on Chestnut. Probably still a nice place to crash, even if all the spots I was familiar with are long gone.

WABAC July 2023 in Fund Discussions
Matt Levine: Stock Fund- But You Can’t Lose Money !
If there was a “sure” way to make even a penny profit on a trade with 0 risk of loss, people would scale in. (So there isn’t.)
Closest to this I’ve ever achieved was an apparently defective slot machine years ago while visiting a casino with relatives. It actually was consistently paying out a quarter for every 15 or 20 cents cents put in. Played maybe 30 minutes and probably walked away with $3-$4 gain. I’d have stayed longer, but the rest of the group couldn’t see the merit of this exercise and so we moved on.
However, the schemes outlined by Old Joe and msf certainly sound like hedging taken to the extreme.

hank July 2023 in Fund Discussions
Anybody use any hedging or shorting?
Well said @fred495 -
To me it’s all about doing better than cash over the short-intermediate term (approximately 3 years) with a risk profile you can tolerate. It’s not about beating the market or beating @FD1000 - or beating anyone else. It’s not a game. It’s about being able to stay near fully invested - even at an advanced age - and doing better than you would if parked 100% in cash (or cash-like investments). Why bother? Because inflation is unpredictable. Investing in something beyond “0 risk” cash is one way of hedging against an unknown rate of inflation.
All the criticisms of hedging are true. It does cost more and it does detract from your total return. And the various approaches attempted by funds are unpredictable … You think a balanced fund is more predictable? DODBX fell over 33% in 2008.
My purpose in posting wasn’t to find out whether you can make more money by hedging (You can’t). I just wanted to pick people’s brains about whether they ever engage in the practice and, if so, how they go about it. Thanks to all who offered an opinion.

hank July 2023 in Other Investing
Anybody use any hedging or shorting?
I've noticed JHQAX (several others mentioned it) a while ago.
This fund seems to offer appealing risk/reward characteristics and it's less expensive than many "alt" funds.

And, JHQAX has successfully proven its mettle over the past 9 years by "providing smoother returns by tempering downside and upside returns via a systematically implemented options strategy".
Of course, it obviously all depends on your personal goals. At this stage of my life, I prefer to err on the side of caution since I don't need a lot more money.
Hence, I prefer to invest in a fund like JHQAX which had a total return of 8.2%, and a modest standard deviation of 8.6%, over the past 5 years. Whereas SPY, for example, gained 12.2%, but had a significantly higher standard deviation of 18.7%.
I find that sleeping well at night is more important to my wellbeing than making a lot of money.
Fred

fred495 July 2023 in Other Investing
Anybody use any hedging or shorting?
I understand DSENX because Doubleline explains it very well.
In the last several years, PIMIX managers also used higher leverage (and the ER was much higher). It all boils down to the fact that PIMIX is more of a black box where I don't know what they do at any given time and it's less predictable than other bond funds.
This is why I used to own PIMIX for 7-8 years at a very high % and sold it years ago.

FD1000 July 2023 in Other Investing
Anybody use any hedging or shorting?
Unfortunately M* has been off for years about PIMIX. I downloaded the last PIMCO+Bond+Stats+2023+06.xlsx from Pimco.
M* uses all the SEC filing information to present exposure by asset class. PIMCO mechanically sums market value figures, disregarding the effect of derivatives. Of course these figures don't match. One set informs investors about how the fund behaves (which is the theme running through this thead), the other is a pro forma summation.
The significance of this distinction can be seen easily using DSENX as a model. This fund uses nearly all its cash to purchase bonds (100% fixed income exposure), and then for next to nothing buys derivative exposure to the CAPE index (100% equity exposure). Cash exposure is thus -100%. The prospectus explains this and M* shows the fund to have approximately these exposures.
DSENX filings show that about 97% of the fund consists of fixed income, and 0% is equity. Those market value (MV) figures are accurate, just as the MV figures for PIMIX given in a post above are accurate. And they're all misleading.
No one thinks of DSENX as a bond fund. Rather it is presented (rightly) as a CAPE index fund with a bond kicker (100% added fixed income exposure). While PIMCO funds are more inscrutable, they similarly use derivatives to achieve behaviors that are belied by simple market value summaries.

msf July 2023 in Other Investing
Matt Levine: Stock Fund- But You Can’t Lose Money !
Buffer Fund
A well-known bit of derivatives magic — a great, simple party trick that derivatives structurers can use to impress their friends — is that if you give me $100 today, I can invest $91 of it in two-year Treasury notes paying 4.75% interest, and in two years I will have $100. And I can invest the other $9 in two-year at-the-money call options on the S&P 500 stock index, options that gain value if the S&P goes up over those two years. Those options cost, let’s say, 13% of the price of the S&P today, so spending $9 on options will get me an option on about $70 worth of the index. And so I can offer you the following trade:
• You give me $100 today.
• In two years, I give you back (1) $100, no matter what, plus (2) 70% of the return on the S&P 500 index, if it’s up.
If stocks go up, you get the gains (well, 70% of them). If stocks go down, you don’t get the losses. What a great trade!
And because I can do this efficiently in size, and because I thought of it and you didn’t, and because I advertised it to you with a cool brochure, I can charge you like 1% of your money for putting this trade together. It is a very good trade, honestly. If you are a sophisticated investor you can quibble with it, but at a simple intuitive level it is just nice. “You get [much of] the upside of stocks, but no downside” is a clean and satisfying pitch. The shape of the payoff graph is pleasing.
Bloomberg’s Vildana Hajric and Emily Graffeo report:
The pioneer of the world’s first “buffer ETFs” — exchange-traded funds that are supposed to limit losses during market selloffs — has launched a new product which it says offers investors complete downside protection.
Investors in the $7.5 trillion ETF universe can now put money behind the Innovator Equity Defined Protection ETF, which began trading under the ticker TJUL on Tuesday. The offering comes from Innovator Capital Management, which launched the first so-called buffer ETFs, also sometimes referred to as defined-outcome funds, in 2018.
Buffer funds, as the name suggests, offer buffered exposure to stocks by limiting investors’ downside risk while also capping upside potential. …
Yet, Innovator says that its TJUL fund — which will track S&P 500 returns up to a capped percentage over a two-year period — will be the first of its kind to protect against 100% of stock losses. TJUL’s cap on potential gains is estimated at about 15% after fees.
Specifically, the fund will invest at least 80% of its net assets in options on the $423 billion SPDR S&P 500 ETF Trust (ticker SPY), according to the fund’s prospectus. TJUL can purchase and sell a combination of call and put options in an effort to cushion against market volatility.
The outcomes set by the fund may only be realized by investors who continuously hold shares of TJUL from the first day of the “outcome period” — July 18 — to the end of the two-year period, which is June 30, 2025, reads the prospectus.
They give you 100% of the gains up to the cap, rather than 70% of uncapped gains, but same basic idea.
There is a reason that this product is the first of its kind: If interest rates are zero, I can’t invest $91 in Treasuries to get back $100, so I don’t have $9 to spend on options to get S&P 500 upside. (I have to put, like, $99 in Treasuries, and the only way to get you any meaningful upside is by giving you some downside risk too.) But as interest rates have gone up, products like this look better, and so people are offering them.
Of course as interest rates have gone up, products like this are in some sense less attractive: Putting up $100 and getting back $100 in two years is worse if I missed out on 4.75% interest than it would be if interest rates were zero. But that’s not the point! The point is that a trade like “I will give you some stock upside and take 75% of the downside between down 5% and down 20% blah blah blah” is annoying and complicated, while “I will give you the upside of stocks and you can’t lose any money” is nice and simple and intuitively attractive. “Buffer fund” is complicated, “stock fund but you can’t lose money” has an obvious appeal.

Old_Joe July 2023 in Fund Discussions
Anybody use any hedging or shorting?
I have spent years looking for hedging, and shorting funds, starting with AQR. I could not find any consistent fund that can do it. A fund can work for several years and then stop working for other years.
My conclusion is that the only thing that works, especially for retirees who have enough is to go to MM in high-risk markets and back to invest when markets are "normal. Sure, it's called timing. Timing doesn't have to be perfect, just good, just like investing isn't. All you got to do is come up with a system and try, if it does not work then stop.
Here is another point that many miss. Missing the worst days is better than missing the best days.
https://www.barrons.com/articles/timing-the-market-pays-off-buy-and-hold-51588186928
So here’s the full truth, according to data from Ned Davis Research. From 1979 to mid-April of 2020, the S&P 500 Total Return Index gained 11.23% per annum. Sure, if you missed the best 40 days, returns shrunk to 5.21%. How about if you missed the worst 40 days? Nobody ever talks about that, because you’d be accused of market timing. Guess what? Your returns would soar to 18.83% annually. And importantly, if you missed both the best and the worst 40 days, you actually beat the market at 12.39%.
FD: and more importantly, the portfolio risk-adjusted return is much better too.
Read the following
https://www.cambriainvestments.com/wp-content/uploads/2018/01/Where-the-Black-Swans-Hide-the-10-Best-Days-Myth.pdf
Conclusions:
1. The stock market historically has gone up about two-thirds of the time.
2. All of the stock market return occurs when the market is already uptrending.
3. The volatility is much higher when the market is declining.
4. Most of the best and worst days occur when the market is already declining because markets are much riskier than models assuming normal distributions predict.
5. The reason markets are more volatile when declining is because investors use a different part of their brain making money than when losing money.

FD1000 July 2023 in Other Investing
Buy, Sell, Ponder? - July 2023
Here’s a lesson in how not to invest. I’d played around with DraftKings stock (DKNG) for a couple years. “In and out” / “In and out” as it fell from $45 down to under $11. Fortunately, I managed to break even. Not without a lot of effort. Than in January I bought a pretty big slug of it for $11 which was near its all time low. I vowed to hang on. But when it got up to around $14 by month’s end the “chicken” in me took hold and I cashed out for the $3 per share gain. Today, the stock sits near $31. So I’d have nearly tripled my $$ by hanging on 6 more months. If you want to make $$, buy something you believe in that’s badly beaten up and hang on for the long term.
PS - I don’t any longer post specific holdings or buys / sells. Thought the lesson worth sharing.

hank July 2023 in Fund Discussions
Anybody use any hedging or shorting?
HEQT might be worth a look for the nervous. Takes equities and adds put-spread collars to reduce volatility. Has done quite well so far this year -- lags SPY, of course, but still, not bad. Like to see how it performs in a really nasty bear market, though.

Thanks for making me aware of HEQT. I am one of those "nervous" investors that has been well served by JHQAX in the past.
While HEQT "has done quite well so far this year", JHQAX has achieved higher YTD and 1-year total returns but with higher volatility.
Unfortunately, HEQTX has been in existence for only 1.7 years, whereas JHQAX has been around for 9.6 years. Difficult to make a judgement about a fund over such a short life span.
I will add HEQTX to my watchlist to monitor its risk/reward performance over the next couple of years.
Again, thanks for the tip, Richard.
Fred

fred495 July 2023 in Other Investing
FD1000...3-Line Break
dtconroe said: "I want to note that FD has run some of the most popular threads, on several different forums over the years. He developed a large following from bond oef investors, with his monthly threads on Bond OEFs. He offered some detailed charts of bond oefs by category, with a listing of diagnostic information, and performance history. It was a ton of monthly work, but very valued by a large number of posters."
Fully agree, dt, since I was one of those many posters who gained a lot from FD's monthly diagnostic charts of bond OEFs.
I miss the valuable contributions he made in the past, and am just sorry to see that he is wasting his talent, and his and our time, by letting himself be so easily distracted by ad hominem attacks of a few posters.
As racqueteer said: "It is also not compulsory to respond to someone's post. If you can refute their argument with FACTS and LOGIC, have at it. Otherwise, move on. Why is that so difficult?"
Fred

fred495 July 2023 in Fund Discussions
FD1000...3-Line Break

OJ, I want to note that FD has run some of the most popular threads, on several different forums over the years. He developed a large following from bond oef investors, with his monthly threads on Bond OEFs. He offered some detailed charts of bond oefs by category, with a listing of diagnostic information, and performance history. It was a ton of monthly work, but very valued by a large number of posters.
[snip]
Just my perspective for what is worth.

@dtconroe,
Your statements quoted above are certainly true.
However, there is much more to this story.
I won't get into the details, but suffice to say, FD's behavior was sometimes inappropriate
and caused acrimonious disputes.
You seem to imply (I may be mistaken) that if a poster creates popular threads
and develops a large following, forum participants should ignore his or her egregious behavior.
If this is in fact your judgement, I respectfully disagree with the notion.
Just my 2 cents...

Observant1 July 2023 in Fund Discussions
FD1000...3-Line Break

It's "difficult" because it's essentially the same thing as tolerating a few louts screaming and interrupting an otherwise calm and civil meeting just because they feel entitled to do that.
That conduct is similar to what we've now come to see as "normal" in the political arena, especially from individuals who have limited or no previous experience in the mainline political environment, and no concept at all of how to conduct a civil exchange of viewpoints.
I don't respect that in the political environment, and I certainly don't appreciate a few ill-tempered juvenile louts poisoning the environment here at MFO.
OJ, I want to note that FD has run some of the most popular threads, on several different forums over the years. He developed a large following from bond oef investors, with his monthly threads on Bond OEFs. He offered some detailed charts of bond oefs by category, with a listing of diagnostic information, and performance history. It was a ton of monthly work, but very valued by a large number of posters. I think he grew weary of putting that much work into monthly bond oef threads, and he did have to deal with a handful of detractors, that he got tired of battling. I suspect those posters, who greatly valued those threads, would welcome him back to those kind of threads, but I doubt he will choose to do that again.
Just my perspective for what is worth.

dtconroe July 2023 in Fund Discussions
Anybody use any hedging or shorting?
”Stay away from it. If possible.”
Yes. Stay away from timing. Agree.
But stay away from considering relative valuations? No. Asset valuations fluctuate over time. To some extent, herd mentality plays a part. None of us has a crystal ball in that regard either. But part of being an investor - professional or retail - is trying to assess relative valuations, be it in large-cap stocks, small-cap, EM or developed global markets.
There was, I think, a lot of “timing” going on in the retail sector in mid ‘22 - a mere 10 months ago. Many unloaded equities due to predictions of approaching recession. Here is an intriguing MFO thread from September, 2022. Pretty typical of the prevailing retail tenor of the day. Where was the buoyant optimism of today back than?
https://www.mutualfundobserver.com/discuss/discussion/comment/153670/#Comment_153670
- One comment: ”I think you have to be worried that it will take five years for stocks to recover.”
- Another: ”Gloomy now, just think how bad it would be if we were in a *recession*”
- Another: ”Ty for the heads up. Not sure what to do now - wait w cash /buy more CDs hoping crisis will pass.”
- And from the excerpted NYT passage: ”Mr. Tangen, of Norway’s sovereign wealth fund, said that he did not think there was an investment area anywhere in the world likely to make money in the near future. ‘That’s the really depressing thing,’ he said.”
The NYT article, which the distinguished @Old_Joe posted at the top of that thread, is dated Sept. 16, 2022. Below is a link to the closing averages for that day. Would you rather buy the S&P back than at 3873 or today at 4555? https://www.coastalwealthmanagement24.com/the-markets-as-of-market-close-friday-september-16-2022/
Despite the air of pessimism running through the thread, a number of posters did see a buying opportunity. @LewisBraham, for one, suggested it might possibly be a good time to buy equities - and made exquisitely good sense as usual. @Junkster mentioned that HY might be a good buy.
Deciding what to own / what to hedge (if anything) relates to assessing relative valuations. I claim no particular acumen in that regard. Just saying, timing aside (don’t do it), there is always the more critical question of relative valuations to consider.

hank July 2023 in Other Investing
Anybody use any hedging or shorting?

@msf
href="https://www.morningstar.com/funds/xnas/tmsrx/portfolio">per M*? A mere trifle. PIMIX / PONAX, a fund lauded here, has129% in fixed income shorts (net 188% long), and has 222% in cash shorts (net 89% short) suggesting a lot of leverage. Figures from M*.
Unfortunately M* has been off for years about PIMIX. I downloaded the last PIMCO+Bond+Stats+2023+06.xlsx from Pimco.

FD1000 July 2023 in Other Investing
Yogi Bear Bull Is ill.
Great to have you feeling better YBB. Like others, I've appreciated your spot-on commentary here and for many years prior at M*. Thank you!

Dennis Baran July 2023 in Fund Discussions
Anybody use any hedging or shorting?
Thanks @MikeM
I’m looking at JHQAX right now thru my subscription to the FT. It shows 97.6% long U.S. equity, 1.82% long non-U.S. equity. No shorts. Top 5 equities: Apple, Amazon, Microsoft, Nvidia, Alphabet. Those 5 comprise over 23% of portfolio. All 5 of those stocks, except Amazon, have gained over 30% the past 1 year. And Nvidia is up 200% over that time. So, how that fund hedges is a mystery looking at the chart. I imagine it ~~sells~~ buys puts on its holdings. Pretty common practice. Giroux was big into that several years ago. But don’t know about today.
Re Nvidia, I noticed the other day it was one of the top 2 or 3 holdings in PRPFX. The fund does invest in “aggressive growth stocks.” So I guess it struck “gold” with that one.
Don’t know about Schwab’s site. But Fido’s analytical tool will show short positions as a % of any asset you own and subtract that sum to display your “net” long equity position. Good tool. Shows me 50% equity long, 8% short for a net 42% equities, Sounds about right considering all my holdings plus a 1.5% short position (SPDN) I initiated directly yesterday. Interestingly, it also shows a small (4%) short position in short term bonds. Possibly one of my alternatives has figured out how to do that.

hank July 2023 in Other Investing
Anybody use any hedging or shorting?
I hold JHQAX, JPMorgan Hedged Equity Fund. I bought in over 2 years ago and have added to it to a point where it is about 10% of my portfolio. We've talked about this fund before and I guess I really can't explain very well the put-call spread collar strategy it uses. I only know it moves with the S&P500 with a much smoother ride. As a hedge fund, it's a way of participating in the equity markets at much less volatility. It just rolls along making money when the market is going up and losing much less when the market declines (upside capture ratio ~51%, downside ~36%.)... FWIW.

MikeM July 2023 in Other Investing
Anybody use any hedging or shorting?
@hank
Question for you sir. In your opinion is shorting, long short more of a psychological approach to keep you invested? Very difficult to get right, timing and all, have to be right, hard to know when the central banks step in , psychology of market participants....hussman makes so much rational sense, makes money when market turns down but then gives it back and goes nowhere in an interesting way as you alluded to
My perspective after never winning long term by shorting is to never expose to the markets more than 6 to 9 months of salary, work compensation if the sp500 drew down by 50%. Ya very conservative but compounds the portfolio very well.
Another way to satisfy the shorting Jones might be to be in a fund like velix which does short somewhat and opportunistically or maybe fpacx which can have an eclectic approach and keep you invested through a down flush in the markets
Annual average return can fool a lot of folks....start go up 50% and then down 50%. Average over two years is 0% return but you're actually down 25%.. from where you started. Compounding your wealth is important and if shorting prevents the big flush or keeps you from being to aggressive might work...
Best regards
Baseball fan

Baseball_Fan July 2023 in Other Investing