Bond Investors Are Better Off in ‘Interval Funds.’ Here’s Why. - Lewis Braham
“In the world of bond funds, one major underappreciated risk is the liquidity imbalance that exists between funds and their shareholders. Traditional bond mutual funds and ETFs must provide their shareholders with daily liquidity—in other words, investors must be able to withdraw any part or all of their investment on any day. That’s a mismatch to what the funds own, such as bonds that can have maturities of up to 30 years, or bonds that don’t trade daily.”
By Lewis Braham, Barrons May 25, 2020
https://www.barrons.com/articles/bond-investors-are-better-off-in-interval-funds-heres-why-51590152400
(Good luck with above link. Better idea - Buy a copy of Barron’s or subscribe. Amazon lets you cancel digital subscriptions anytime.)
There seems to be an increasingly loud chorus of premonitions concerning bond funds of late. I’ve taken the liberty of adding a couple warning shots from two other seasoned observers. Notwithstanding: Lewis’s article is unique and approaches the issue from a different direction.
- - - Plague Investing - Ed Studzinski
“So, for your investable assets, I am sticking with my recommendation for a barbell strategy. For fixed income, limit yourselves to short-duration, short-maturity investments where the funds are managed by experts who have been doing real credit analysis for years. You can find them by paying attention to the reviews that David has written. These situations are to be differentiated from those fixed income funds run by generalists who did things based on rating spreads in quality rather than real analysis. They are nothing more than high-yield tourists.”
Edward Studzinski - Mutual Fund Observor May 3, 2020
- - - What You Don't See Might Be What You Get - Bill Fleckenstein
“ (For) those who have any bond funds, you have to be very careful unless they are all government bonds, because there's a lot of garbage in these funds and a lot of the credits -- which were probably overrated to begin with -- have certainly now deteriorated.
Thanks to one of our longtime readers, who runs a bond shop, and pointed out what happens when these funds see redemptions, which is that the most liquid bonds tend to get sold first, and they also tend to be the highest quality. In his words:
‘Without any change in investment strategy, such investors are left with a portfolio of assets that can be very different to the same portfolio at the time of investment … It is imperative for investors to ensure that they are not left in funds that are deteriorating in asset quality due to such redemptions.’
So, any of you in bond funds need to make darn sure that you know what you own. If you don't, it might be a good time to exit stage left.“
Fleckenstein Capital .com (Subscription Required) Excerpted from March 26, 2020 edition
https://www.fleckensteincapital.com/home.aspx
“In the tranquilly resounding corner, listening to the echoing footsteps of years” - Charles Dickens

@johnN: I too have pondered whether to take my foot off the accelerator. Prior to COVID, I could see retirement on the not-so-distant horizon. COVID temporarily erased the smile that was starting to form. I'm closed to being recovered but uncertainty is still in the air. I wanted to retire within five years, but if it has to be 10, it has to be. However, what I do know is being in Cash won't get me there. It certainly won't get me there as quickly as I'd like. I feel like Evil Kenievel in that I'm in the air and I've cleared most of the buses, but whether or not I can stick the landing remains in question. I won't go gentle into that good night. The stock market has been my vehicle for independence. I am trusting the Managers I've chosen have performed their due diligence and the companies within the funds are strong enough to make it to the other side, or have the ability to take advantage and gain market share. I may be wrong, but it is the path needed to achieve my goal. Good luck.

I’m in my 3rd year of retirement - during the 2000-2002 and 2008-09 years I was working and simply continued to dca into my/our 403bs and IRAs. I kept my head down and ran with it as buying opportunities. This time (for me) is different. With a 35/63/2 (equity/bonds/cash) allocation prior to CV-19 and feeling flush, I drank the koolaid with mad money to DSEEX, JMUTX, PIGIX, PIMIX, PCI, OPTAX, ORNAX with approximately 6% of PV. Still holding PIMIX, PIGIX, PCI, and DSEEX. I’ve looked at the loss as a learning opportunity, and will sell the others if/when they recover. My allocation sits at 30/59/11 (E/B/C) and I’m slowly deploying the cash to VBILX, VWIUX, VIG, and VTI.

I have discussed D&C inferior risk/reward. I would not select any of their funds.
Why would I look what DODGX did since the bottom?
YTD...VFIAX(SP500) is at -7.8% while DODGX is at -20.2%
One year...VFIAX 5.5%...DODGX-10.9%
3 year........VFIAX 9.4%...DODGX 1.4%
VFIAX continues to beat DODGX for 5-10-15 years and with better SD, Sharpe,Sortino. See 15 years PV(link). How long can you underperform + have higher volatility and claim that you are OK because you can't compare DODGX to the SP500?
For moderate allocation, I would look at PRWCX,VLAIX. VLAIX has more mid-cap and higher rated bonds so owning both is a good choice.
For conservative allocation, VWIAX/VWINX is a good choice.

- @JohnN - May I suggest calling it “The Trump Bear Market”?

How convenient to blame Trump. I don't remember you cheered Trump with the lowest unemployment in decades (the usual TDS)...but don't worry, you will get him for 4 more years.

@davidrmoran - Here’s what I get this morning looking at Yahoo Finance (cross-checked NAV with MarketWatch). My mathematical skills are always suspect, so others may have a better way to compute DODGX’s gain.
Closing price DODGX 3/20/2020: $122.40
Closing price: Friday, May 22, 2020: $151.57
Increase in NAV: +23.81%
Dividend paid March 26: $2.80 per share
Increase including dividend: Approximately 26%
If the above doesn’t satisfy, try running the numbers from the next trade-date, Monday March 23, when DODGX closed at $118.38
https://finance.yahoo.com/quote/DODGX/performance/
-
@Davidrmoran said: “Second, what's the goldenness from early Jan 09 onward ” They lag SP500 hugely to date “ David, I’m not sure whether you purposely misrepresented my remark or perhaps, I needed to add some additional qualifiers to the statement. I thought that within the context, it was concrete enough. As you are no doubt aware, comments like that need to be considered in light of the context in which they appear.
The whole point I was making is that D&C funds tend to have erratic (roller coaster) patterns of performance. So, my comment “when they rocketed back to the top of the herd beginning in 2009, they became the golden boys once again” was meant to refer to another sharp reversal in performance which lasted several years. Obviously, that “golden boys” moniker no longer applied in recent years. If it had, we wouldn’t be discussing a remark like @Shostakovich‘s “in light of some of the controversy here around D&C funds”. You don’t see that during the hot performance periods.. More likely, people are asking whether thay can buy D&C funds NTF.
“S&P 500”? Where did that come in? I thought we were discussing actively managed funds.
No dispute that if you could buy past performance, the S&P500 would be a better investment than most actively managed funds - at least since sometime in the ‘90s. I suspect by now that’s included in high school history books.

Second, what's the goldenness from early Jan 09 onward?

He used a standardized period starting July 1, 2009. Perhaps that was not crystal clear in the text, but he compared 10 year performance ending, as indicated in the chart, on June 30th. That was the latest standardized period as of the date of the column, Sept 6, 2019.
Standardized periods are used (and mandated by the SEC for advertising) to eliminate cherry picking. Of course a single time frame would still be subject to luck of the draw - a fact you recognize below in looking at multiple periods.
There's another part of what he did that you didn't mention or question. Why 10 years? Conventional wisdom is that one should not invest in equity for shorter time periods. Because of random market cycles, recessions, etc., it can take that long to work through a 1-3 year "glitch" in the markets.

They lag SP500 hugely to date, of course, with this latest plunge + partial bounceback ... so lemme check prior endpoints. Nope. Some spans lag, some outperform, the 5y point (1/14) may be the most marked, but still meh if one held on.
Are we looking at the same graphs?

Sometimes I wonder :-). I looked at all rolling 10 year periods (calendar aligned) since VBINX began in late 1992. That means periods starting with 1993-2002 inclusive, and ending with 2010-2019.
DODBX so outperformed VBINX prior to the 2000-2002 decline that it maintained its superior performance (over rolling 10 year periods) even incorporating this timespan until 2008 came along. One can see that work its way through the figures, as VBINX showed better 10 year performance figures for five periods, 2003-2012 through 2007-2016.
But DODBX's superior up market performance gradually won out, as it had a better 10 year period 2008-2017. That still included the 2008 market and illustrates why it helps to have patience in the market. Of course DODBX did markedly better in 2009-2018 once 2008 dropped out of the 10 year span. It also had measurably better performance than VBINX in 2010-2019.
Here's a link to the M* chart I used. Just shift the starting and ending years back by the same amount to get each of the time rolling 10 year periods.

Ending	DODBX		VBINX			DODBX	VBINX	Vanguard
better
2002	$31,694.86 	$24,760.51 		12.23%	9.49%		
2003	$33,110.62 	$24,338.11 		12.72%	9.30%	
2004	$36,910.11 	$27,029.50 		13.95%	10.45%	
2005	$30,731.67 	$21,988.23 		11.88%	8.20%	
2006	$30,192.64 	$21,240.21 		11.68%	7.82%	
2007	$25,702.73 	$18,639.66 		9.90%	6.43%	
2008	$16,013.00 	$12,314.30 		4.82%	2.10%	
2009	$18,324.21 	$13,022.55 		6.24%	2.68%	
2010	$17,795.19 	$14,986.11 		5.93%	4.13%	
2011	$15,883.06 	$16,019.47 		4.74%	4.82%	
2012	$19,437.25 	$19,811.94 		6.87%	7.08%	    *
2013	$20,042.23 	$19,476.41 		7.20%	6.89%	    *
2014	$19,204.01 	$19,557.82 		6.74%	6.94%	    *
2015	$17,511.22 	$18,767.06 		5.76%	6.50%	    *
2016	$17,927.61 	$18,363.16 		6.01%	6.27%	    *
2017	$19,768.25 	$19,622.84 		7.05%	6.97%	
2018	$28,627.38 	$24,767.53 		11.09%	9.49%	
2019	$26,333.86 	$24,696.26 		10.17%	9.46%	

I morphed into a plan over the years though I admit every time it's tested, like in March, I still get nervous.
The plan, the plan...
- 1/2 my retirement savings is in the Schwab Intelligent Portfolio at about an equity:bond:cash allocation of 45:35:10. I can't screw it up, which is good :)
- over the past year I set up a 3 year expense withdrawal bucket in anticipation of cutting back to part time semi-retiring or retiring altogether. I wanted the option.
- The remainder of the savings is my self managed account which went into March at about 56:25:12 and about 7% gold. I'm most disappointed in the bond portion of this where I held IOFAX, MAINX and HY munis. That plan changed. I sold IOFAX and MAINX and the new plan is to be very lean in bond funds going forward. For some reason I can accept an equity fund dropping 25% but I just can't accept a bond fund dropping 20+. I've actually put a lot of the bond sale proceeds into an alternative fund MNWAX.
- I'm 66 and trying to hold off SS as long as I can.

Hi @kings53man,
Just wondering what your overall asset allocation might be? Cash 10% ... Fixed (income) ? ... Equity (stocks) ?
I have been retired now for more than five years. My basic asset allocation is 20/40/40 which I can overweight the income area and equity area by 5% each should I feel warranted. Currently, I'm at 15% cash, 40% income and 45% equity. Since, the yield on cash is in the 1% range (or less) I'm thinking of raising my income allocation to 45% and reducing cash to 10% as my CD's mature. The last CD I had mature, a week or so ago, I rolled into three good generating income funds with a package yield of a little better than 4%. The three fund package consisted of BLADX, FLAAX & PFANX.
Here is more on how I roll now in retirement.
Old_Skeet's All Weather Asset Allocation.
My all weather asset allocation of 20% cash, 40% income and 40% equity affords me everything necessary to meet my needs now being in the distribution phase of investing. The benefit of this asset allocation is that it provides sufficient income, maximizes diversification, minimizes volatility, and provides long-term returns.
The 20% held in cash area provides me ample cash should I need a cash draw over and above what my portfolio generates plus it can provide the capital necessary to fund a special investment position (spiff) should I choose to open one during a stock market pullback. In addition, cash helps stabilize a portfolio during stock market volatility. Example of investments held in this area are cash, money market mutual funds and CD's.
The 40% held in the income area provides me ample income generation to meet my income needs in retirement. It is a well diversified area that incorporates a good number of income generating type funds. Some examples of investments held in this area are BAICX, FLAAX & PONAX.
The 40% held in the equity area provides me some dividend income along with some growth, that equities generally provide, that offsets the effects of inflation, over time. Some examples of investments held in this area are IDIVX, NEWFX & SPECX
Generally, for my income distributions, I take no more than a sum equal to what one half of my five year average total return has been. In this way, principal grows over time. And, as principal grows the amount available for distribution does as well.

Thanks @Mark.
“ policymakers around the world can't afford to let a massive deflationary economic collapse occur, and for millions and millions of people to be unable to afford the necessities of life and for half of large companies to go out of business, so they will be forced to keep the stimulus taps open, funded with printed money, with a willingness to devalue currency to avoid the worst case economic scenario."
Investors should keep in mind that the above is just one possible scenario. So if you bet on it by loading up on risk assets and instead global economies fall into the dumpster for the next decade, you'll lose a lot of money. Probably would have been better off in AAA bonds.
Listened to Howard Marks of Oaktree Capital on Bloomberg today. I thought he missed the “mark” a little. In addressing the steep equity valuations today Marks painted 2 possible outcomes: (1) A near term sharp retrenchment in equity valuations or (2) Continued CB easing and government stimulus which may keep equities / risk assets “levitated” for many years before they finally fall back to earth. (But possibly Bloomberg edited out other pertinent commentary.)
There is a 3rd proposition, which Schwartzer seems to address: Paper currencies will steadily erode in purchasing power owing to all the easy money & repeated government stimulus around the world so that the seemingly high valuations today may appear cheap in a decade or so. In other words, in a decade from now you may be glad you owned some of today’s “bloated” equities. I think we tend to underestimate the slow steady effect of inflation on our standard of living and on our investments.
“The fog creeps in on little cat feet.” - Carl Sandburg

Hi @johnN,
Thanks for posting the article on munis. It covers how to determine which offers the better investment value ... muni's, treasuries, or corporates? And, for me, cash as well.
Muni's are a part of my diversified income sleeve and I can hold up to about an 8% to 10% weighting in them. I have one more buy step to make before they (FLAAX) will be at full weight within the sleeve. Currently, FLAAX is 6.5% below its 52 week high and offers value, from my perspective, if purchased in the near term. FLAAX has gained 1.5% over the past 30 days. In comparison, one of my money market mutual funds, PCOXX, has returned a mere 0.04%. A couple of my multi sector income funds (JGIAX & LBNDX) that hold a large percentage in corporates has returned better than 3%. And, for the sleeve as a whole about 2.4% while it's more aggressive cousin, my hybrid income sleeve, is around a return of 4%.
From a yield review and since there is a tax advantage for FLAAX being a muni fund vs JGIAX & LBNDX which are taxable funds this puts FLAAX & LBNDX about even with a slight yield advantage to JGIAX after taxes are considered.
Looking back over the past five years the best performing fund within my income sleeve has been ... you guessed it ... FLAAX.
For me, on a risk adjusted basis muni's are currently offering up good value and there is space within the sleeve to add more, which I plan to do.

I use FR(floating rates) funds only for trades. FR are one of the best bond categories when rates are going up because of their very short duration. FR are a subcategory of HY and when market conditions are risky they lose money just like HY do.
Let's discuss higher distribution of all types, from stocks to bonds and others. I have been debunking it for years now that higher distribution investments are superior to lower ones. You must look at risk/reward and only then look for higher distributions. The most disturbing is when a retiree MUST have a certain % withdrawal and insist on investment to support it. Sure, if it's 2-3% no problems but the ones that MUST have 4-5% and more should look at risk/reward first.
The most important is TOTAL RETURNS which includes distributions.
Stocks-if the high tech companies such as MSFT didn't convince you now after decades of great performance then nothing will.
Bonds-do I must go for HY to get better risk/reward? of course not.

@hank - and so it shall be.
Lyn Alden Schwartzer's May 19 article, "First Liquidity, Then Solvency," is a brief, detailed and chart-laden description of today's economy and market.
"Does it get better from here, or is this a big fake-out for another round of selling as we move deeper into this year? ...
"The next several years are likely to be challenging for many companies with weak balance sheets, so make sure you know what you own.
"...the top 5 mega-cap stocks have held up the major American stock market indices like Atlas holding up the world, and reached levels of concentration not seen in nearly four decades."
"...policymakers around the world can't afford to let a massive deflationary economic collapse occur, and for millions and millions of people to be unable to afford the necessities of life and for half of large companies to go out of business, so they will be forced to keep the stimulus taps open, funded with printed money, with a willingness to devalue currency to avoid the worst case economic scenario."
Lyn Alden Schwartzer's May 19 article

@davidrmoran Since I have limited tax deferred space, I hold my PONAX in a taxable. Despite holding it for many years, I am showing a loss due to taxable distributions and recent price declines.
I'm also going to get out (or mostly out) if/when PONAX breaks even. I know that's not necessarily a good investment strategy, so I may act earlier and book a loss.

I'm thinking the same thing about PIMIX. I've only held it for a few years as my core bond fund, but it has done nothing but lose money, and at my age, I don't need income from it. It would have been better leaving it in a bank. Amazon has been a waaay better buffer for recent bear markets. I'm considering adding to my AMZN position and dumping Pimco, balls to the wall.

2020 skews results. Some funds have done way better than their long term performance would suggest, LLSCX has done remarkably worse (99th percentile of mid cap blend category).
Looking instead at 1/1/2010 through 1/1/2020, LLSCX has done okay. Not an endorsement or a commentary on its investments, but rather a suggestion to look at more than one snapshot in time. Especially given that the outsized impact of the 2020 market effectively transforms some "long term" figures into "what have you done for me lately" pictures.
Here's a chart over that timeframe comparing LLSCX, R2K (its stated benchmark), midcap blend (its M* category since 2011), and small cap value (it claims to buy small cap companies, and Longleaf generally claims to be a value family). It just edged out R2K (210% cumulative return vs. 206% for R2K), and did better against the MCB and SCV category averages.
M* comparison chart
If you don't like looking at charts (personally I prefer to read numbers), the LLSCX summary prospectus says that the fund's average return over the past ten years was 11.98% vs 11.83 for the R2K. That's 2010-2019.
Why bother? Lots of better funds out there.
Can't argue with that :-)

I have been in and now out of Longleaf funds for decades. I finally gave up. While their reports are wonderfully detailed, and they make compelling arguments for all of their positions, the market seldom agrees.
I think they make some disastrous mistakes over the years, and stuck with large positions that were cheap and stayed cheaper or got cheaper.
Neither LLSCX or LLPFX have beaten their benchmark over the last decade. 11% of LLSCX is in Century Link which is down 35% since they first bought it. While CTL owns a large chunk of the internet backbone, it is loosing revenue quickly.
Why bother? Lots of better funds out there.

Hi guys,
Was reading The Economist magazine. It has some scary things regarding bankruptcies, and a wave is coming. Already it's as bad as 2009, and it's only starting. Bonds.....2/3 of the non financials are BBB or junk. Already huge numbers will go to junk. Of the 32 worldwide junk bond defaults in April, 21 were in the U.S. Oil and gas (shale) are going to be smashed. Other sectors include retail, restaurants, mining, transport, cars, utilities. Also there will be lots of zombie companies that will survive for years. Europe is in the same shoes. I'm glad I don't own small cap funds now. Still, I worry about the mid caps I own. This will get bad, I think.
God bless
the Pudd

I also wish to thank @Puddnhead for all the informative and entertaining B/ S threads over the years. I suspect that’s a favorite read for many who don’t actively participate.
@Mark - Your Lyn Alden Schwartzer article would also fit under the “What The Hell is The Stock Market Doing?” thread: https://www.mutualfundobserver.com/discuss/discussion/56135/what-the-hell-is-the-stock-market-doing-cullen-roche

Lyn Alden Schwartzer's May 19 article, "First Liquidity, Then Solvency," is a brief, detailed and chart-laden description of today's economy and market.
"Does it get better from here, or is this a big fake-out for another round of selling as we move deeper into this year? ...
"The next several years are likely to be challenging for many companies with weak balance sheets, so make sure you know what you own.
"...the top 5 mega-cap stocks have held up the major American stock market indices like Atlas holding up the world, and reached levels of concentration not seen in nearly four decades."
"...policymakers around the world can't afford to let a massive deflationary economic collapse occur, and for millions and millions of people to be unable to afford the necessities of life and for half of large companies to go out of business, so they will be forced to keep the stimulus taps open, funded with printed money, with a willingness to devalue currency to avoid the worst case economic scenario."

News article concerning reopening:
https://www.advisorperspectives.com/articles/2020/05/22/southeastern-the-exceptional-opportunity-in-small-cap-value?topic=energy
Southeastern Asset Management excerpt concerning LLSCX reopening:
We designed this reopening in a thoughtful way. We are only targeting $2.5 billion of AUM. If we get there quicker with a performance bounce-back, that's great. We'll close again. We've shown over the years that we focus on doing the right thing for those clients who are already with us.