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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.
  • Sequoia Fund May Reopen To New Investors After Valeant Dive
    FYI: Sequoia Fund, which has faltered from its big bet on drugmaker Valeant Pharmaceuticals International Inc., is considering opening to new investors for the first time in more than two years.
    Regards,
    Ted
    http://www.bloomberg.com/news/articles/2016-04-19/sequoia-fund-may-reopen-to-new-investors-after-valeant-losses
  • Fund Focus :Yale Endowment
    @TSP Transfer: Hold on, not so fast, although Daivd Swenson does a great job running the Yale Endowmentt Fund, over the last ten years a 11.2% return has beaten him. I just proves that David can beat Goliath.
    Regards,
    Ted
    http://www.nytimes.com/2016/02/26/business/in-college-endowment-returns-davids-beat-the-goliaths.html
  • Fund Focus :Yale Endowment
    Yale is routinely the best-performing endowment in the world
    Posted on April 15, 2016 by David Ott Acropolis Investment Management LLC
    One of my favorite reads of the year is from the Yale Investments Office, which manages their $25.6 billion endowment. You can find the report by clicking here.http://investments.yale.edu/images/documents/Yale_Endowment_15.pdf
    Yale is routinely the best-performing endowment in the world and has earned a remarkable 13.9 percent return over the last 30 years – well above the 10.7 percent return for US stocks, 8.7 percent return for foreign stocks and 7.1 percent return for bonds.
    I’ve read both books by David Swenson, their pioneering investment manager, and pay close attention to their annual report. I haven’t finished this one yet, but I was surprised by their large increase to foreign stocks in recent years.
    http://acrinv.com/yale-bets-big-overseas/
    Asset Allocations
    as of June 30, 2015
    Yale University / Educational Institution Mean
    Absolute Return 20.5% / 24.1%
    Domestic Equity 3.9 / 19.4
    Fixed Income 4.9 / 9.3
    Foreign Equity 14.7 / 22.1
    Leveraged Buyouts 16.2 / 5.9
    Natural Resources 6.7 / 7.3
    Real Estate 14.0 / 3.7
    Venture Capital 16.3 / 4.6
    Cash 2.8 / 3.7
    In 1985, 80% of the Endowment
    was committed to U.S. stocks and bonds. Today, target allocations call for
    12.5% in domestic marketable securities, while the diversifying assets of
    foreign equity, natural resources, leveraged buyouts, venture capital,
    absolute return, and real estate dominate the Endowment, representing
    87.5% of the target portfolio.
    The heavy allocation to nontraditional asset classes stems from
    their return potential and diversifying power.
    Venture capital investments provide compelling option-like returns as
    the University’s premier venture managers gain exposure to innovative
    start-up companies from an early stage. Yale’s venture capital allocation
    of 14.0% exceeds the 4.6% actual allocation of the average educational
    institution. The venture capital portfolio is expected to generate real
    returns of 16.0% with risk of 37.8%.
    Yale’s venture capital program, one of the first of its kind, is
    regarded as among the best in the institutional investment community,
    and the University is frequently cited as a role model by other investors.
    Yale’s venture capital managers are strong, cohesive, and hungry teams
    with proven ability to identify opportunities early and support talented
    entrepreneurs as they build early-stage businesses. The University’s vast
    experience in venture capital provides an unparalleled set of manager
    relationships, significant market knowledge, and an extensive network.
    Over the past twenty years, the venture capital program has earned an
    outstanding 92.7% per annum.
    http://investments.yale.edu/images/documents/Yale_Endowment_15.pdf
  • Some really big YTD gains in bond funds of all stripes and colors
    @Junkster I see you trade MF rather frequently, trying to time the market. Do you ignore all fees for selling mutual funds prematurely or keep some discipline in doing that?
    DavidV big difference between a timer and a trader. Timers predict and forecast while traders react. Never met a successful timer or at least a successful Mom and Pop timer. Hear about a lot of their claims but whenever I ask if they care to back them up by multi years of real time trading statements or 1040s (and I would reciprocate) they always back down. Everyone seems to trade stocks, options or futures. If they only knew about the trading opportunities in open end mutual funds. But to them it is akin to watching paint dry. Yes, I ignore the fees associated with selling funds within 90 days (Scottrade) It's part of doing business albeit getting harder to ignore. In the old days at INVESCO and Strong you could buy and sell their in house funds at will with no fees whatsoever. Then came the $17 fees and now as of a month or so it's has risen steeply to $49.99 at Scottrade. Even more if it is a transaction fee fund. That may force me to change my style or at the very least be more of a diversifier and not be so quick to cut and run.
  • Junk Bonds: Never Stodgy And Steadier Than You Might Think
    Interesting link, Ted, thanks for it. I'm curious what some of the many saavy bond investors here think about current junk valuations, @junkster and @dex maybe?
    Not an investor but the "experts" are all over the ball park when it comes to the prospects of the junk bond market. In Ted's linked and bullish article we see this comment Payson Swaffield, chief income investment officer at Eaton Vance, thinks we are at the beginning of a new cycle of positive junk returns that could last a few years. Yet, in this week's Barrons we see an interview with Michael Weilheimer, head of Eaton Vance's Income Fund who is cautious and thinks we will be rangebound and are anywhere from the 6th to 9th inning of the credit cycle. Same firm yet two entirely different opinions on junk bonds. Marty Fridson the junk bond guru says ex oil we are an extreme valuations in the junk bond market. And of course we all know the Bond King's (Gundlach) constant and continual bearishness on the junk bond market.
    The market though, who never listens to the experts has been very bullish and the average open end junk fund is up 3.62% YTD with many up over 5%. So unless oil goes back to $30 it is looking more and more like double digits gains for 2016 will be achieved.
    Edit Ted's linked article was a good one as it highlighted the dampened volatility of junk bonds.
  • Confused about FPACX
    @kevindow, I want to ensure you that I am sincere. Over 10 years ago I was seeking an all-weather fund and seriously considered FPACX, but picked T. Rowe Price Capital Appreciation, PRWCX instead. Even though the smaller AUM, Steve Romick' track record, and flexible mandates were attractive attributes, Richard Howard, the former manager of PRWCX also have consistently good record despite having bigger AUM.
    I understand that back-testing is not possible when the ETFs that don't exist in the period of question. Perhaps VWIAX in combination with VDIGX would work since both go back to 2000. With respect all active managed funds, the AUM is always an issue. Many tend to close to new investors too late in my opinion. That is one of the reason we are increasing our allocation to index funds.
  • Confused about FPACX
    I've always been an admirer of Romick but I've never been able to justify the fees. In 2000 I was 50 and could still bench 400 lbs. Times have changed for me and I suspect Romick as well. 'Course that's what makes a horse race.
    The thing about IVV is one can swap for voo, vti etc and reap the tax loss instead of paying more taxes for people that bail out of the fund. Those years you mention it seems like I had funds that lost money and I paid taxes too.
  • Lewis Braham: How To Use Sector Funds To Create A Winning Portfolio
    @msf
    Thanks for the background links.
    Here's another article focused on early cellphones. No desire to detract from Lewis' article. But suspect cell phones and their modern variant smart phones play a critical part in today's investing, be it tracking current investments or (as was often the case with the Fido Selects) actively trading. Since my Fido investments in the early 80s probably amounted to a couple K, plunking down $3,995 for an early cellphone (1984 price) probably would have been imprudent. :)
    "Somewhere in either Chicago, Baltimore or Washington, someone plunked down $3,995 to buy the Motorola DynaTAC 8000X, the first handheld cellphone, on March 13, 1984 — 30 years ago today."
    http://mashable.com/2014/03/13/first-cellphone-on-sale/#uyYq9kRydaq6
  • Junk Bonds: Never Stodgy And Steadier Than You Might Think
    Hi @expatsp,
    Interesting question and one that I have explored myself in looking for an answer. I am not sure my findings will fully answerer your question but I'll share my discovery. To begin, I looked at what an index bond fund's weighted price was and found it to be around 108. To me, this suggest the index is selling at about an eight percent premium over par. Then I looked to see what the average weighted price was in my income sleeve of my portfolio and found it's average weighted price for the bond funds that it holds to be about 95. With this, I took it that the bonds held in the funds found in my income sleeve were priced, on average, at about 5% below their par value.
    This amounts to about a 13 point spread between the index and the bonds found in my income sleeve. And, with this, I am thinking, some upward price appreciation might be expected. Naturally, there are some influences and factors that I did not mention that will effect bond prices. However, this was my down and dirty quick look. The return, five percent price appreciation if held to mauturity plus interest.
    Perhaps, the above information might be helpful in you finding an answer, you seek, to the question.
    For me, I think, I found mine.
    ________________________________________________________________________________________________________________
    Additional comment: In addition, I found that the index fund I used as my proxy to have an average maturity of 7.6 years with a duration reading of 5.4 years while my income sleeve has an average maturity of 4.8 years with a duration reading of 2.9 years. With this, I am thinking there is more downside risk for the index over my income sleeve in a rising interest rate environment. Please note, not all the funds contained within my income sleeve have great exposure to junk bonds although some representation to the sector can be found in most of them. For information purposes their ticker symbols are as follows: GIFAX, LALDX, LBNDX, NEFZX, THIFX and TSIAX.
  • Confused about FPACX
    MStar shows 1.03% ytd, -2.69% over 1 yr, and 6.39% over 3 years. That's less than 60% IVV and 40% cash over all periods for the fee of 1.11%. Nothing confusing about that.
  • Lewis Braham: How To Use Sector Funds To Create A Winning Portfolio
    Nice point in Lewis' article about dispersion.
    Many years ago I posted in misc.invest.mutual-funds opining that Fidelity's use of inexperienced managers in its Select funds really didn't matter, because they were effectively buying bunches of similar stocks (i.e. no skill needed). It seems I was half right - correct only for sectors where companies tend to move together, not for all sectors.
    A few bits of inconsequential trivia:
    - Fidelity Select Funds started in 1981(if there was anything older, it hasn't survived)
    - Those funds appear to have been FSENX (Energy), FIDSX (Financials), FSPHX (Health), FSPTX (Technology), FSUSX (Utilities), and Precious Metals and Minerals (merged into Gold in 2000)
    - The funds were sold with a 3% load, plus a 0.75% redemption/exchange fee for equity funds held under 30 days, and a flat $7.50 for shares held 30+ days
    - Daily pricing started in 1986
    - There are still funds priced more than once daily, viz. some Rydex funds are priced at 10:45 and 4PM
    - Cell phones were invented before Fido Selects. Bell Labs' Advanced Mobile Phone Service ("advanced" being handoff from cell to cell) was invented in the mid 1970s. There was trial service in 1978, and the first commercial service was in 1982.
    https://www.researchgate.net/publication/2377716_Advanced_Mobile_Phone_Service_-_An_Overview
    (Years ago I spoke with people from Bell Labs who had worked on AMPS. They felt that but for regulatory issues, cellphones would have been deployed earlier.)
  • False Start For Value ETFs ?
    Value investors generally have had a tough go the past couple years.
    Here's good post by the folks at AlphaArchitect ...
    Update on the Valuation Metric Horserace: 2011-2015
    and even better ...
    Has the Value Investing Pain Train Ended?
    c
  • Lewis Braham: How To Use Sector Funds To Create A Winning Portfolio
    @LewisBraham
    Your write takes me back to my time machine. :)
    In the way back days with Fido in the mid-80's, I used to "trade/swap/move" using Fido's select funds. Fido had established their F.A.S.T. system (Fidelity Automated Service Telephone) which allowed buy/sell/pricing info via the touch tone telephone. At the time, Fido's select funds could also be traded each hour of a trade day with pricing set at the top of each hour. Using Fido's fund numbers and touch tone character codes, one could move money around among the majority of their fund offerings.
    I also used the phone system for obtaining closing prices on many funds which were placed onto a paper graph and/or chart. I used this info to establish moving averages via hand graphed charts/tables of funds drawing my attention. The "other" method for we retail investors at the time was to await a paper copy of the WSJ or Barron's for printed pricing of funds.
    Some of this "work" was eventually performed on a real pc at the time (1987). This magic pc, a N.E.C built in Japan; had a massive 20 MB hard drive and 640K ram (the upper limit usable by MS at the time). Twas cool at the time, but very expensive with the monitor and printer.
    A proper reply to your write is that "yes", money can be made using Fido select funds and/or the many combinations available today. We here are well aware of the many choices via select funds or etf's. Folks who are on the ball with what is going on in the markets may obtain excellent returns with these methods. Lots of folks have traveled this road over the years since the introduction of these select funds.
    A Fido time line at the below link:
    https://www.fidelity.com/static/dcle/welcome/documents/Timeline_fid_092709fla.swf
    Regards,
    Catch
  • MFO Premium Ratings Updated Through March 2016
    I Have Been Watching BTBFX For Years - I Cant Buy It Because Fido Makes You Buy a Minimum Of $100,000.00. Its a Great Fund, Its Up Over 4% ytd
  • Gundlach Webcast: Fed Rate Hike 'Increasingly Likely' One and Done
    Also:
    Gundlach: Swap Corporate Bonds for Mortgage
    J. Gundlach, bond King, Doubline, is suggesting to blow out of your corporate bonds, especially junk, that were purchased at the height of panic when everyone thought the Fed was crazy enough to hike rates four times this year.
    Wait, aren’t they still saying that?
    Gundlach quote from Tuesday:
    “The junk market was scared to death that the Fed was actually going to go forward with their suicide mission to raise rates four times this year, four times next year and four times the year after,” Gundlach said. “It’s not surprising that the same burst of enthusiasm for Treasury bonds, once the Fed seemed to abort their suicide mission, it also helped junk bonds. I don’t think that can continue any longer.”
    Government-backed Ginnie Mae mortgage-related securities “are cheap relative to Treasuries,” the fund manager said. “That’s been a good buy point for the past six years.”
    http://ibankcoin.com/flyblog/2016/04/12/gundlach-swap-corporate-bonds-for-mortgage/
    From Ted's link
    "The easy money has been made," Gundlach said.
    Seemed to be his general theme not only with "junk" but oil and C E F's.Harder to get to $45 oil than from $30 to $40. Many C E F nav discounts have narrowed .Good way to
    participate is RNDLX/RNSIX .Likes the Puerto Rico Municipals for high income individual/family taxpayers.Likes C M B S '( Principal Real Estate Income PGZ up near 2% today ). Continues to stick with his now 2 year old prediction of $1400 gold.Bond investors at least 25% defensive posture which of course would be comparable to his own managed (DFLEX/DLINX).
    Also
    Try this asset allocator
    http://bluerockfunds.com/asset-allocator/
    And questions or comments besides WHY?
    TI+ is a fund for individual investors that seeks current income, low-volatility, capital preservation and long-term capital appreciation. In the three+ years since its inception through February 29, 2016, TI+ has delivered a total annualized return of 8.93%, including 12 consecutive quarterly distributions at an annualized rate of 5.25%. Significantly, the Fund has achieved risk-adjusted returns of five to seven times higher than leading stock, REIT, and bond market indexes, underscoring the Fund’s low volatility.
    As of 4/14/2016 NAV
    TIPRX $28.79
    TIPPX $28.37
    TIPWX $29.00
    http://bluerockfunds.com/documents/
  • What (De)Regulation Q Means For Your Portfolio
    I believe those were not actually money market funds, but other MMF-like vehicles including short term investment funds (STIFs) and enhanced cash funds. Extensive quotes from an ICI paper explaining these are below (after --- break).
    The ICI also has a two pager: Money Market Funds in 2012, History of Money Market Funds
    It says:
    - Money market funds were created in the early 1970s ...
    - In 1994, the Denver-based Community Banker’s U.S. Government Money Market Fund reported a NAV below $1.00 and ultimately investors recovered approximately 96 cents on the dollar.
    The reason why I quoted the second item is that the first MMF to fail was an institutional MMF, not a retail one. That shows that in this paper, the ICI is talking about institutional as well as retail funds when it writes that MMFs were created in the early '70s.
    FWIW (can't verify, I don't know anything about the firm other than it makes the same claim on its own webpages):
    "Drinker Biddle & Reath's lawyers are nationally recognized as pioneers in the bank-related mutual funds market dating back to the mid-70s. The firm developed the country's first institutional taxable and tax-exempt money market funds"
    http://www.thefreelibrary.com/Drinker+Biddle+&+Reath+ranked+No.+1+mutual+fund+counsel+in+the...-a016805468
    ---------------
    From the 2009 Report of the Money Market Working Group:
    (Section 3.1) "Money market funds were developed in the early 1970s as a way to allow retail and other investors with modest amounts of assets to participate in the money market. ... Previously, market rates of return had been available only to wealthy individuals and large institutions with sizeable amounts to invest.
    [Note "market rates of return", not "money market funds"]
    It goes on to describe STIFs in Section 5.1.2:
    "Bank trust departments offered a short-term investment product (STIF) several years before the first money market fund appeared. These cash pools amortized cost to meet client and fiduciary demands for low-risk investments that function much like money market funds."
    The only mention of an investment vehicle available to wealthy individuals in the paper is the enhanced cash fund (Section 3.1):
    "These funds seek to provide a slightly higher yield than money market funds by investing in a wider array of securities that tend to have longer maturities and lower credit quality. ... Enhanced cash funds target a $1.00 NAV, but have much greater exposure to fluctuations in their portfolio valuations. Enhanced cash funds are privately offered to institutions, wealthy clients, and certain types of trusts."
  • What (De)Regulation Q Means For Your Portfolio
    This column does not do a good job of making its point - I'm even sure what its point is.
    As it notes, aside from continuing to prohibit demand deposit (traditional checking) accounts to offer interest, Regulation Q had been phased out years before Dodd Frank. Even regarding checking accounts, except for commercial accounts interest bearing checking accounts had been around for decades (think "NOW").
    It doesn't explain why, if Reg Q started in 1933, it took until 1972 for the first MMF (the Reserve Fund) to be created. (The answer appears to be that Reg Q was changed in 1966; until then banks offered above market rates.)
    For a more extensive and clearer history of Reg Q (through 1986, when it had all but gone the way of the dodo), see the 1986 Fed paper:
    Requiem for Regulation Q: What It Did and Why It Passed Away
  • Clients Pull Cash From Sequoia Fund Investor, Get Stock Instead
    Response from Sequoia's David Poppe:
    For many years Sequoia Fund has clearly disclosed that we can and do pay large redemptions with securities rather than cash, and we have done so thousands of times before this year without incident. So we were puzzled by “Sequoia Clients Get Stock Shock” (Business & Finance, April 9) questioning the practice as a “shock” to investors and trying to tie recent in-kind redemptions to our Valeant stake. This policy isn’t new, is unrelated to the ups and downs of our fund and, specifically, is unrelated to our holding in Valeant.
    We redeem with shares to benefit our continuing shareholders, who might otherwise pay capital-gains taxes on the sale of appreciated stock that might be required for redemptions. By redeeming in kind, our 20,000 continuing Sequoia shareholders will pay lower capital-gains taxes in the future. Our goal is always to be tax-efficient and to do what is right for continuing shareholders. For a departing shareholder, there is no tax or other consequence to receiving stock instead of cash, aside from the minor inconvenience of having to sell a security upon receipt. We take care to always deliver stocks that trade in sufficient volume so that the exiting shareholder can sell them immediately without depressing the market for a particular security.
    David M. Poppe
    President
    Sequoia Fund
    New York
    http://www.wsj.com/articles/sequoias-redemption-with-securities-is-tax-efficient-1460583731
  • Very happy with Seafarer(SFGIX) but any other suggestions
    I chose Seafarer (SFGIX), but in my 401(k), Capital Emerging Markets Growth Fund (EMRGX) chose me, as the plan swapped out American's (NEWFX), for Capital's (EMRGX), which has a lower (.80) ER.
    On paper, the EMRGX managers look to have more experience than nearly any foreign/emerging markets operation - its partners have in the range of 15-to-40-years. Apparently, they were "chosen by the International Finance Corporation, a World Bank affiliate, to manage the world’s first global emerging-market fund."
    But their long-term results (and the emerging markets category) are uninspiring. If those markets ever catch a sustained rally, I would expect EMRGX to be rewarded for the risk - a la GMO's forecast on a mean reversion for the category.
    Right or wrong, I consider such exposure a diversifier, without getting crazy with more esoteric, alternative options.
  • Larry Swedroe: Unconstrained Bond Funds: Not Worth The Risks
    FYI: Faced with a low interest rate environment since the financial crisis of 2008, many investors have begun to seek higher returns than those available from safe fixed-income investments such as Treasuries and FDIC-insured CDs. The ongoing pursuit for higher bond returns has led many investors to investments known as “unconstrained” bond mutual funds (also referred to as multi-sector, absolute return, strategic income and opportunistic fixed income). In 2010, these funds attracted more than $170 billion in assets. In the succeeding four years, assets in unconstrained bond funds rose to $223 million, $275 million, $416 million and $462 million, respectively.
    Regards,
    Ted
    http://mutualfunds.com/news/2016/04/12/unconstrained-bond-funds-not-worth-the-risks/
    M*: Mulitsector Bond Fund Returns:
    :http://news.morningstar.com/fund-category-returns/multisector-bond/$FOCA$MU.aspx