>>forgive thickness, but not seeing how ...
Regardless of whether you see how, Shiller does. The index removes one of the five lowest CAPE sectors due to fear of a value trap (low momentum remaining low). If one of the ten sectors that ought to outperform is eliminated because it might not, then surely it's possible that a second would also fall into this trap, and a third, and a fourth.
The index is a variant of a Dogs of the Dow strategy, where you pick by sectors rather than by stocks, and look at the past ten years rather than the past year, and then throw out the worst dog. It's not guaranteed any more than the Dogs is (are?).

As I mentioned, I looked at their quarterly schedule of investments for December and they've used the swaps to get equity exposure with no cash outlay. Almost 80% of the NAV was invested in bonds of one sort or another, 13+% was what I would call cash and 8-% was other. I think, but I'm guessing, that almost all of that "other" is unrealized gains on their swaps. The notional amount of the swaps is very close to the amount they have invested in bonds and cash, so the NAV excluding the unrealized appreciation on the swaps.
So, what are the risks and how likely are they? I'd be happy if others have more to add because I would suggest for a minute that my list is complete.
1. As with any investment other things can do better. If the fund's 4 sector investments don't do as well or better than other sectors then the fund would have a more difficult time keeping up with the S&P 500, for instance. The theory is that CAPE has predictive ability and that will drive better returns. The studies I've read suggest CAPE does have statistically significant predictive power but it doesn't tell you much, if anything, about what will happen in the next month. I know they've done a great job of beating the S&P 500 every calendar year since inception but I'm not aware of anything about CAPE that would make me think it'll always be that way.
2. If the equity markets crash then the fund will perform just like the sectors it's invested in but it should do a bit better thanks to the income from the bonds. They won't have margin calls based on what I can determine and they know when their swaps expire so they should be able to sell bonds in an orderly fashion to pay off losses on those swaps. Without getting into the nitty gritty it looks to me like they have enough highly liquid bonds that they shouldn't end up having to sell less liquid bonds in a fire sale.
3. The worst case I can think of would be something like hyperinflation that drives short term interest rates very high and equity markets down, like in the 70s. If the transition to that was sudden then they'd be holding bonds that would lose value and could more than offset the income they pay plus they'd be losing money in equities just like their index and they'd do worse than the index rather than better. Is that possible? Sure. Is it likely? Probably not very.
4. Could they run into a problem where the counterparty on their swaps, Barclays in most cases, experienced a crisis and wasn't able to pay what the fund was owed? I guess so although you'd have to assume that's less likely today than 10 years ago but that would only eliminate gains the fund had made rather than the cost of its investments, which would depend instead on the counterparty to the hundreds of bonds they own.
It seems to me if you like or believe in CAPE as a "factor", since that's essentially what this fund is, then it's a pretty nice approach they've developed.
@hank, I also know you suggested taking a look would be under the hood of the bond holdings. I will eventually read the prospectus but just glancing through the list of investments and the fact sheet didn't strike me as anything crazy. It looked like a Gundlach bond portfolio and to a large degree I consider that a good thing.

Hi Guys,
Jim Stack is a very defensive oriented money manager. He is a constant worrier which is a positive characteristic for a money man. He is a rock-solid, good man.
For years he has assembled and follows a series of Bear market signals. The current status of those signals is that only one has turned yellow suggesting almost no warning of a Bear market? As of February, Stack's assessment was very similar. Here is the Link to that conclusion:
http://www.moneyshow.com/articles/GURU-45616/stack-on-stocks-a-cautious-bull/
Not much has changed to prompt a reversal in his judgment. His largest worry today is the rather extended length of the current positive trend. I interpret his scorecard as no immediate action needed.
Best Wishes

A fair number of funds have similar strategies (though they're often tied to the S&P 500 index or something else less "esoteric" than the CAPE index).
The idea is not the the bonds moderate the volatility, but that they enhance returns. That is, you're getting 100% equity exposure for virtually nothing (hence they high leverage multiplier), and you've got cash left over to "enhance" the index returns.
The funds are not planning to buy low and sell high. They're planning to track the index, wherever it leads, but also to add alpha from fixed income. To do that, they have to make more on their (long term) loans than it costs them (short term rates) to buy index tracking derivatives.
I've not tried to work through the details, but this Kiplinger article in the WashPost a few years ago expands on what I wrote, in its description of MWATX and PSPAX, two funds that try to enhance S&P 500 returns through futures.
http://www.washingtonpost.com/wp-dyn/content/article/2008/04/07/AR2008040700711_pf.html
PIMCO claims it has been doing this since 1986.

FYI: Wall Street pros say bull markets don’t die of old age. But after eight years of rising stock prices, being on the lookout for signs of a market peak makes good financial sense.
Regards,
Ted
http://www.usatoday.com/story/money/markets/2017/03/07/bear-market-warning-flags/98695888/

With stock market valuations near all time highs and with the good possibility that the Fed will soon begin to raise interest rates I am now with the thought that the coming weeks will be a good time to start to restore my CD ladder. In addition, I plan to rebalance my portfolio and sell down some of my equity mutual funds to where stocks become a neutral position within my asset allocation during the month of March and raise cash by a like amount. With my current allocation of cash towards 20% plus what I get from selling equities will provided me with ample cash to put towards building the CD ladder plus leaving enough cash on hand for other purposes. Currently, I'm thinking a ladder in six month steps with maturities of six months, one year, eighteen months and two years will keep the ladder with short maturities. In addition, and over time, I plan to roll out of some of my short duration and limited term fixed income funds and move this money into some hybrid funds.
Other than the above I don't have any other investment concepts on the horizon.
Just wondering what others might be thinking or any adustments you plan on making during in the coming weeks within your portfolio?

Thanks for the provocative question @LLJB. A good one for @BobC or @msf to answer.
I'd like to play around with it (more for self-education than anything else), if you don't mind. DSENX is what I'd consider a "black-box" fund. To me the term to characterizes funds which (1) make extensive use of derivatives and/or (2) allow an unusually high degree of latitude on the part of the manager. I'll assume DSENX has the ability to short assets (related to use of derivatives).
Derivatives are subject to numerous risks. The linked summary prospectus http://www.doublelinefunds.com/wp-content/uploads/Shiller_Enhanced_CAPE_Sum_Pro.pdf prominently defines some of those. The Class N .89% ER is quite reasonable for this type of fund. Reported turnover is 67%. My understanding is that brokerage/trading fees are not reflected in a fund's ER, so expect a much higher amount of hidden cost compared to a plain vanilla equity fund.
If you create a 100% exposure to some type of equity index(s) through use of derivatives, while at the same time investing a significant portion in fixed income, than of course you're leveraging-out the equity exposure. Price swings on the equity side should be exaggerated compared to actual equity values. The managers, as you suggest, probably count on their fixed income holdings to moderate or offset the inherent equity volatility. Lipper's breakdown of holdings:
Bonds: 42%
Equity: 33%
Other: 18%
Where I'd take a second look, since you seem very knowledgeable about the equity orientation, is at the types of bond holdings allowed. It appears from the prospectus that fixed income (average maturity out to a maximum of 8 years) may include CMOs, high yield, floating rate, and just about anything else the manager wants to buy - including the kitchen sink. A lot of funds will try to hedge equity fluctuation with high quality bonds. This latitude in the fixed income end is a bit concerning to me. But I'm not Jeff Gundlach. :)
Not entirely sure what you hope to achieve through this fund. I've used black-box funds with varied success over the years, usually as hedges against equity/bond losses - but nothing quite like this one. Oppenheimer's ill-fated commodities fund (QRAAX) used derivatives to invest in various commodity futures. At times the fund would report bond holdings as high as 110% while still being fully exposed to commodities! The fund I replaced it with, Capital Income (OPPEX), is also a bit of a black-box. I trust the current manager. But in the wrong hands the fund could take a Kamakize dive at just the wrong time. Those buying DSENX are likely making a similar calculation based on Gundlach's excellent record.
FWIW: Lipper scores (3-year + old) DSENX very highly, giving 5 (its highest score) for "capital preservation" among "diversified equity" funds. These ratings are based on performance comparisons rather than any in-depth analysis. So tables could turn quickly, I suspect, if the style of investing were to fall out of favor.

Hi Guys,
In life "you don't always get what you pay for" seems to be a rule rather than an exception. That's especially true in the mutual fund business. Here is a Link to a one minute video that documents that truism from Morningstar:
http://www.morningstar.com/cover/videocenter.aspx?id=691300
Not surprisingly, the Dodge and Cox and the Vanguard organizations are impressive using this yardstick.
We've been losing the CEO pay fight for a number of years now. I don't see that changing much since most folks use their pay as a measure of their value to their companies in particular and to society in general. The rare exceptions are real treasures.
Best Wishes

My wife was a teacher in the SF Public School System for 35 years (and deserves a hero medal). She was extremely fortunate, in that the SF teachers had a decent pension system (CA Teachers Retirement), were allowed to also contribute to Social Security, and also were allowed a self-funded, self-directed 403B. After she retired we rolled the 403B over to an IRA.
Because of that, we contributed self-funding to the max on her salary, and Social Security and self-funded IRA on my salary. For the twenty years of my final job with San Francisco as a radio tech I also received a city pension.
While we were very fortunate to be in the right spot at the right time for those benefits, we also saved like crazy for forty years, and are now very comfortable.

That's true now, but for its first decade, give or take, BUFSX was a very good SCG fund. 1% is a fair price for such a fund, it performed well, and it was a bit distinctive in that it employed some top-down (sector-focused) management. AFAIK the family as a whole still looks at sectors as well as individual securities in making investment decisions.
I can't tell you what happened, but in the past decade the family seems to have, if not imploded, certainly degraded. It used to have a fund - Buffalo USA Global (BUFGX) that focused on multi-nationals (a way to get international exposure without leaving the US), like Fidelity's Export and Multinational (FEXPX).
Its Science and Technology fund was also a bit distinctive in that it combined traditional technology and health care sectors. That was jettisoned as well, and the fund was converted into Discovery (BUFTX). That's a respectable growth fund that still maintains a bias toward technology and health care, but much less so than before.
It's often a warning sign when a boutique house juggles funds like this and becomes less distinctive. I stopped following Buffalo closely several years ago, but agree that now it doesn't seem to be anything special.
Side note: the four funds I mentioned, three Buffalo funds and a Fidelity fund, are all funds that M* used to cover but dropped.

Hi Guys,
Hooray for Larry Swedroe! In this current article Swedroe identifies Monte Carlo simulators as an important tool when making a retirement decision. He joins many financial advisors who also exploit this useful tool when making that life changing decision. I too have recommended application of Monte Carlo simulators since the early 1990s.
Swedroe emphasizes that a projected failure rate from these Monte Carlo estimates is not sufficient as a standalone output. He argues that the time of potential portfolio exhaustion failure during the retirement lifecycle is also critical. I completely agree.
The code that I frequently recommend, from Portfolio Visualizer, does provide that information in a graphic format. Once again, here is a Link to that excellent website tool:
https://www.portfoliovisualizer.com/monte-carlo-simulation
When I first became interested in the retirement riddle, Monte Carlo calculators were not readily available. So I built my own copy. I too recognized that the time of failure was a critical output. So on my version of a Monte Carlo code I included a user option to reduce withdrawal rate percentage by a user input if the portfolio suffered negative returns for 3 consecutive years.
An input of a 10% withdrawal rate reduction after 3 down markets lowered the portfolio failure rate substantially. These Monte Carlo studies encouraged my early retirement. Other approaches to protect against a portfolio failure exist.
I encourage you guys to visit the Portfolio Visualizer website and to consider using their Monte Carlo code. It's a terrific tool; give it a try.
Best Wishes.

FYI: According to the Economic Policy Institute,
“CEO pay grew an astounding 943% over the past 37 years, greatly outpacing the growth in the cost of living, the productivity of the economy, and the stock market, disproving the claim that the growth in CEO pay reflects the ‘performance’ of the company, the value of its stock, or the ability of the CEO to do anything but disproportionately raise the amount of his pay.”
For the past two years, we have highlighted the 100 most overpaid CEOs of S&P 500 companies, and the votes of large shareholders, including mutual funds and pension funds on their pay packages.
Regards,
Ted
https://corpgov.law.harvard.edu/2017/03/02/the-100-most-overpaid-ceos/

@Crash
From conversations and observations over the years I find many 403b plans, especially related to hospitals are annuities. Do you find either of these in the naming and/or literature regarding the plan?
TSA, Tax Sheltered Annuity or TDA Tax Deferred Annuity
The VSCIX fund you noted has full data available at M*, etc. So, at least this portion of the 403b may be easily monitored.

I tend to use M*'s premium screener. Familiarity and reasonable flexibility (many criteria and allows numeric values). There are more criteria/features I'd like, but I can work pretty well with it.
I've got T. Rowe Price to thank for this freebie. (Many years ago, T. Rowe Price was the only place that offered free individual 401(k) accounts that included a Roth option. That's what drew me into them.)

@PopTart
You may choose to mix and match then, eh? As I noted, both funds are running similar returns to one another during the past 5 years or so. Of course, everyone must determine their own comfort level with any of this; and in particular, what percentage of a sector holding is of value to be meaningful to an overall portfolio. Our measure here has been that anything less than a 10% holding may not provide enough "bump". 'Course, the same thought applies to the downside, too.
Dollar cost averaging, which most encounter during a working career determines a method for attaining a percentage goal for any holding.
But, you're investing while young; and that is the overwhelming wonderful.
Take care,
Catch

Hi @PopTart
Hoping all is well at the A-squared household. Sure you're teaching the children well...as in, an equity is, a bond is......the markets fluctuate, but.........
Okay, I'll provide a few "are you sh*t'in me data points for broad healthcare.
>>>FSPHX and PRHSX from 1-4-99 thru 1-4-2008 (9 months before the full equity market melt)
---FSPHX return = 61% annualized with all distributions = 7.6%
---PRHSX return =161% annualized with all distributions = 20%
NOTE: from the end of December, 2007 thru March of 2008 healthcare had a hit of about -20% and then moved sideways until the full market melt in mid-Sept. of 2008
http://stockcharts.com/freecharts/perf.php?FSPHX,PRHSX&l=0&r=2262&O=111000
>>>FSPHX and PRHSX, 1-4-2008 thru 3-4-2009 (market melt equity bottom, eh?)
Both down about 40% during this time period. Healthcare was already moving to the downside long before the Sept. 2008 blowup.
>>>FSPHX and PRHSX from 3-9-2009 (end of equity market melt) thru 3-3-2017 (now)
---FSPHX return = +431% annualized with all distributions = 54%
---PRHSX return = +508% annualized with all distributions = 63.5%
http://stockcharts.com/freecharts/perf.php?FSPHX,PRHSX&n=2010&O=111000
>>>Last five years via M*, including the Ms. Clinton comments about taking healthcare/pharma "down". Click onto the 5 year to sort return list. Five year health category average = 17.6%
http://news.morningstar.com/fund-category-returns/health/$FOCA$SH.aspx
As to the future directions....well, forces are pushing from many directions and there will likely be the continued swings in this equity sector. As to the challenges for the political faces portion, is part of this "lobby" link. One might presume that the big monies will continue to "talk", eh?
https://www.opensecrets.org/lobby/top.php?indexType=i
Now on the personal and sometimes scary side for this house, is at this time 67% of all invested assets are in equity with 80% U.S. and the other 20% mostly in Europe. Direct healthcare invests are FSPHX, PRHSX (before closed to us) and FHLC (Fido etf). With the other mutual funds, etf's or index funds; a M* snapshot indicates that 41% of our equity is in U.S./global healthcare. The majority of the monies being in the direct investments. These holdings placed a damper on our 2016 returns, but has us at 6%k YTD, thanks to the recovery in this sector. Keeping the faith at this time for this sector. Active traders are having even more fun; but this house doesn't play in the short time areas very much anymore; but attempt to watch for signs of sector "sickness".
Lastly @PopTart , I do believe PRHSX is available to those within some retirement plans or direct investors with the company, but as you know, not via Fido. Also, the better of these two mutual funds was PRHSX. Within the past several years, even prior to the manager change at PRHSX, FSPHX was traveling a very similar path for returns. Your having direct access to FSPHX should more than cover this area. You may also choose to review some of Fido's other health/medical related select funds. And keep in mind that you likely already have a decent amount of healthcare inside of broad based mutual funds or indexes.
I've tried my best to recall and submit everything I thought about earlier today to reference your post. I'm going to take another check of links and data to help eliminate any mistakes. Questions?
Take care,
Catch

Twice in recent years I have written to the Maryland retirement system offices with some polite questions about the 403(b) and SRA investment options available to us. Never have I received a response or even an acknowledgement. It only reaffirmed one of my major reasons why I selected the self-managed 403(b) option instead of the fairly black-boxy and advisor-riddled state pension system when I joined the university system in 2010.

That's a neat back door to an advanced M* screener.
https://awrd.morningstar.com/SB/USAASB/USAAScreener.asp
There are actually 27,375 share classes. The 15,616 that you started with are the result of the default settings on the screener restricting results to funds that are both open and available via USAA. (Note also that many funds are counted multiple times, since they have multiple share classes.)
Curiously, M*'s premium screener has only 26425 share classes in all. I was trying to figure out how the screener defines "high" for Sharpe ratio and alpha. I'm still not sure.
A few suggestions on your screen:
- Try setting ER limit differently for different classes of funds. IMHO an ER of 0.9% is respectable for a broad domestic equity fund, a bit tight on foreign funds, and ridiculously high for a bond fund.
- brokers often have different mins than the "official" min, so often I don't screen on mins, and then check around if I find a fund of interest. The USAA-customized screener might already adjust for funds through USAA, I haven't checked.
I'm willing to let more pass through a screener and then do some legwork than be too aggressive in screening out potential candidates.
Given that the past five years the market has only gone up, screening for low beta and top quartile performance may be too aggressive. Almost by definition in a market going straight up, the best performers will be the ones with higher beta (since they'll tend to do x times as well as the market, where x is the beta).
In this kind of market, lots of good funds will be eliminated because they're not both consistent top performers and low beta. More than likely the funds that pass these two screens will have a moderately low R^2, meaning that the beta is relatively useless.
NASDAQ funds have high betas, so I'm not sure how you coaxed them through the screener. USNQX has a beta of 1.19 (vs. S&P 500), and NASDX has a beta of 1.18.

For my eyes/thoughts..........the most vital statement in the article:
"Internationally, Vail suggests avoiding G-10 foreign sovereign debt. Why? "Mainly because they're still firmly in easing mode, but yet rates are not going down," she said. "Combine that with dollar strength, which will probably chew at the domestic U.S. investor and eclipse any potential price return you're going to get from the easing policy at the ECB and the BOJ in those countries" (Europe and Japan.)"
>>>Japan's central more or less placed its QE program with the U.S.; after the 2008 market melt, and kept it in place longer. The European central bank played austerity for about 2 years after the market melt and continues today with purchases of some private bond issues for more support. Japan, within the past year intervened directed into their own equity markets for support of those markets. China? Your guess is better than mine. Higher interest rates here will indeed likely continue to maintain a stronger dollar (higher commodity pricing for other countries having to purchase a more costly dollar). And if there is another "twitch" in global equity markets, interest rates will come down here again as protection money will move to U.S. Treasury issues for safety.
One big, funny money circle, eh?
Just a IMHO 2 cents worth.
Catch

$67,928 if you were earning 5% risk-free.
I used the calculator bee points us add and had it calculate $100 initial, $300/year addition (i.e., $25/month), compounded monthly for 50 years. The "compounded monthly" part just means we assume that your April portfolio would have undergone some modest appreciation so your May portfolio will be more than just April + $25.
It's a very imprecise calculation since it does assume all of the additions occur once a year through capital growth occurs, uninterrupted, monthly. The better answer would come from a Monte Carlo simulation. If you're familiar with Excel (Chip and Charles will happily testify to the fact that I am not), one of the faculty at Wabash College has posted a free Monte Carlo add-on for it. The technique also underlies the retirement calculators at T. Rowe Price and Vanguard.
Thanks, by the way, for helping your granddaughter. I've had this same conversation with one of my brothers about why (17 years ago) he should really be putting away $25 or $50 a month for his son's education. I even set up the account and put in some hundreds of dollars to start it. Mostly I got uncertain nods and a long-unfunded account in return. There's some research that suggests we need to visualize our future selves (in some cases researchers use "aging" software to accomplish the task) in order to make this work. Something like, "let's say you've worked like a dog for 40 years and now you find yourself living alone in a house that's too big with a quarter-century of 'vacation' in front of you. What do you imagine you'd want to be able to do or feel?"
For what that's worth,
David