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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.
  • The 2009 Effect
    My wife and I opened Roth IRAs at the end of 1998, at Fidelity. At that time. we only invested in mutual funds. We figured on a long time frame so I wasn't worried about volatility. I told her "here are the two best Fidelity funds -- Select Electronics and Select Home Finance. Which do you want."
    She said "I want the very best one."
    So we put her $2000 in FSELX. (2K was the max annual Roth IRA contribution back then.) Two years later we put another $4000 in FSELX.
    Now it's worth $30,330. Fidelity calculates the total gain at 405%.
    That's certainly been helped by 60% this year.
    Meanwhile, I put my $2000 in Home Finance, which went in the tank in 2008.
    So that's been dumped.
    But I did buy a bunch of FSELX in my Fidelity 403b a few years ago (now my Rollover IRA).
    It tilts our portfolio to "aggressive", for sure. We balance it with some dividend-paying stocks and S&P 500 funds and ETFs.
    I feel more lucky than smart about it all.
    David
  • The 2009 Effect
    edited after consulting the legacy M* graph interface ---
    good patience --- $10k held since midsummer '79 has grown to $589k, woohoo
    (triple that for FCNTX)
  • Why You Shouldn’t Believe Those G.D.P. Numbers
    It's not just that less money is flowing to the working class. It's also that so much work isn't valued at all. Literally. Unpaid work, whether housework, or home care for the elderly, or charitable labor is not only not rewarded, it is not even counted towards GDP.
    It never has been. Written in 1920:
    if a man hires a house and furniture belonging to somebody else, the services he obtains from them enter into the national dividend, as we are here provisionally defining it, but, if he receives the house and furniture as a gift and continues to occupy it, they do so no longer. Again, if a farmer sells the produce of his farm and buys the food he needs for his family in the market, a considerable amount of produce enters into the national dividend which would cease to enter into it if, instead of buying things in the market, he held back part of his own meat and vegetables and consumed them on the farm. Again, the philanthropic work done by unpaid organiser, Church workers and Sunday school teachers, the scientific work of disinterested experimenters, and the political work of many among the leisured classes, which at present do not enter or, when there is a nominal payment, enter at much less than their real worth, into the national dividend, would enter into it if those people undertook to pay salaries to one another. Thus, for example, the Act providing for the payment of members of Parliament increased the national dividend by services valued at some £250,000. Yet again, the services rendered by women enter into the dividend when they are rendered in exchange for wages, whether in the factory or in the home, but do not enter into it when they are rendered by mothers and wives gratuitously to their own families. Thus, if a man marries his housekeeper or his cook, the national dividend is diminished. These things are paradoxes. It is a paradox also that, when Poor Law or Factory Regulations divert women workers from factory work or paid home-work to unpaid home-work, in attendance on their children, preparation of the family meals, repair of the family clothes, thoughtful expenditure of housekeeping money, and so on, the national dividend, on our definition, suffers a loss against which there is to be set no compensating gain. It is a paradox, lastly, that the frequent desecration of natural beauty through the hunt for coal or gold, or through the more blatant forms of commercial advertisement, must, on our definition, leave the national dividend intact, though, if it had been practicable, as it is in some exceptional circumstances, to make a charge for viewing scenery, it would not have done so
    Arthur Cecil Pigou, The Economics of Welfare (4th ed.) (London: Macmillan, 1932).
    https://oll.libertyfund.org/titles/1410#Pigou_0316_113
  • Why You Shouldn’t Believe Those G.D.P. Numbers
    A NY Times opinion piece by David Leonhardt
    "Americans are dissatisfied, and have been for years, largely because the economy as most people experience it has not been booming. G.D.P. — or gross domestic product, the economy’s total output — keeps on rising, but it no longer tracks the well-being of most Americans. Instead, an outsize share of economic growth flows to the wealthy. And yet G.D.P. is treated as a totemic measure of the country’s prosperity."
    "A team of Commerce Department economists has been working on a new version of G.D.P., one that will show how much of the economy’s bounty is flowing to different income groups. The headline number would still exist, but the new data, known as “distributional accounts,” would make clear who was and wasn’t benefiting. The department expects to publish a prototype statistic next year."
    ARTICLE
  • Emerging markets land top of managers‘ portfolios with rising rates
    Yeah - a confusing article. It says “Posted by SDD Contributor December 15, 2019” above the article. Than, within the article, it reverts to the original March (first publication) date. Stuff happens. I’d give John a pass on that one.
    Well now ... Higher rates have been prophesied for at least 6 or 7 years now. I suspect the reasons it hasn’t happened are complicated and might even blow over into politics - Heaven forbid.
    Rates fell (unexpectedly) for much of this year, but have reversed fairly sharply (upward) the past 6 weeks or so. The 10-year Treasury’s above 1.8%. Not sure what the 2-year’s at. But I’d guess money market funds will be soon creeping towards 2%.*
    While rates have risen, there’s a lot of speculation the Dollar is going to weaken against other currencies. Trump has said recently he wants it to, and gold seems to be indicating that’s in the works as well. Central banks are loading up on gold. Rumors abound that the Fed is soon going to start purchasing longer dated bonds to try to hold rates down and spur growth (around year’s end.)
    EM? In a wreaking dollar situation EM currencies would be attractive. If my time horizon was a bit longer I’d be holding some. As far as EM equities - that’s anybody’s guess. there’s a lot more parts in motion to consider.
    * FYI - Here’s some current rates as posted on Bloomberg around noon 12/16:
    2 YR Treasury. 1.64%
    5 YR Treasury. 1.72%
    10 YR - 1.89%
    30 YR - 2.31
    Vanguard’s Prime mm fund was yielding around 1.7% as of Friday.
  • Emerging markets land top of managers‘ portfolios with rising rates
    @MikeM ...hi sir maybe in 9 months feds may raise rate again, dows may reach 29k
    when we find out 4q 2018 was indeed a large correct ion/ small recession stock pulled back -15%
    n focus - Economics
    How Q4 ranks among the worst 20 quarters of the past half century
    -gobal stocks have suffered their worst quarter since 2011. We look at how it compared with the 20 worst quarters over the last 48 years and the potential silver lining for investors today._
    https://www.schroders.com/en/insights/economics/how-q4-ranks-among-the-worst-20-quarters-of-the-past-half-century/
  • Retirement: Why REITs Are Good Bond Replacements
    If you open and read this, there is an image of the guy that wrote this blog and he looks like he may have been about 15 years old when REITS crashed in 2007-2009, so I don't think he understands the pain REIT investors felt at that time. I don't know how he can make this summary statement below. If I look at the Vanguard ETF for REITS, VNQ, it lost 70%+ peak to trough during the great recession. Would that be considered a bond alternative with less risk for retirees?
    REITs are a viable alternative to retirees and other income investors who desire greater income without having to take significantly more risk.
    The above and other posts by MikeM are what I have been saying for years. If I want higher income I use funds like Multisector funds such as IOFIX and PIMIX. If you are looking for high income + a good total return, look no further than PCI,PDI and other Pimco CEFs.
    My opinion is that PCI will have a better performance than stocks in the next 5 years and if you are a trader you can avoid the big losses too by using weekly MACD as a good indicator. See PCI (chart) and use it to buy PCI when weekly MACD is positive and sell when it's negative
  • Pass the donuts
    Yes, OEFs are different. And also rather confusing. When purchased through a brokerage they tend to settle one day after trade (not T+2, and not same day). But when purchased directly from a fund company, they seem to settle "immediately" (end of day).
    Then there are the oddball funds that take more than a day to settle at brokerages. And some other funds that may have same day settlement at a brokerage, but only if you sell them early in the day. (I'm currently dumping a MMF at Merrill that settles same day if I place the order before 1:45PM.)
    What seems to be the case is that regardless of when the settlement date is for an OEF, the ex-date is generally the first trading day after the record date.
  • Retirement: Why REITs Are Good Bond Replacements
    So is it time to trade self-storage reits for storage-of-self reits?
    @Anna - There is such a company: https://www.nbcnews.com/tech/innovation/company-will-freeze-your-dead-body-200-000-n562551 (a link allows you to get around the ad-block blocking.)
    the practice of preserving a body with antifreeze shortly after death ... - Strikes me as not a novel idea. I’ve known guys who routinely do that ahead of time.
  • Retirement: Why REITs Are Good Bond Replacements
    Great find @Mark,
    As folks in these (REIT) funds know, self-storage is often an important component (normally around 10-20% of holdings). The article you linked notes fierce competition, oversupply and cooling of demand in the self-storage market.
    “In addition to our report on the homebuilding sector, we also published Self-Storage REITs: Storage Wars Wage On. Once a perennial top-performer in the REIT sector, developers and new operators have flocked to the sector in recent years, adding new supply at a furious rate, weakening fundamentals. 2019 was shaping up to be a strong year for the sputtering self-storage REIT sector, but 3Q19 earnings were a setback on the road to recovery. Competition remains fierce in an oversupplied market. Symptomatic of the ongoing storage wars, marketing spending jumped nearly 60% from last year for these REITs, pressuring same-store NOI growth to essentially zero.”
    Got me to wondering if there’s some linkage (albeit a bit stretched) between this and the boomers now being 70+ and possibly ridding themselves of various RV vehicles? Personally, I rid myself of a boat recently after 40+ years of boat ownership and no longer rent a self storage unit for it. I’d imagine other types of RV owners also used these convenient storage options.
    Here’s an article documenting a slowdown in RV sales:
    The RV industry is slowing down after 10 years of growth https://www.curbed.com/2019/6/17/18682121/rv-campers-industry-economy-economic-impact-jobs-2018
    The oldest post WW II boomers are now nearing 75. That generation (to which I and many here belong) has had profound impacts on virtually every economic sector over most of the last century including: education, auto and home sales, RV sales, stock and bond markets, brokerages, health care, insurance. The list goes on ...
  • Retirement: Why REITs Are Good Bond Replacements
    Good Day @MikeM. Yes I think we are saying pretty much the same thing now that you explained your thoughts. The attached article lends a more in-depth discussion.
    Good News Becomes Bad News For REITs
    FWIW I'm not buying more REIT's at this time but I am on the lookout for bargains. Timing and patience as they say.
  • Retirement: Why REITs Are Good Bond Replacements
    Hi @Mark. I think in general we are saying the same thing, I think.
    My original point was a reaction to the post article statement,
    "REITs are a viable alternative to retirees and other income investors who desire greater income without having to take significantly more risk."
    To me it would be ridiculous to do a 1 for 1 substitution of bonds for REITs in a diversified portfolio as the author implies. That portfolio would no longer have the same risk tolerance. I see nothing wrong with using REITs in a well balanced portfolio, but if you substitute your bond portion of the portfolio for REITS (as the author states is "safe" to do to get extra yield) you are taking on the same additional risk as substituting bonds for equity funds in my opinion. Both equities and REITs have similar volatility risk. As I mentioned, Just look at what happened to REITs in the great recession. They tanked as much or more that equity.
    Second, my statement, "... but buying them for their income distribution inside a tax deferred account doesn't have much meaning." By "meaning" I meant that it doesn't matter how that REIT fund or any type fund generated its total or final return to you, by yield or by growth, doesn't matter. If you sell the REIT mutual fund inside your IRA (or your Roth) you are just selling the total return that fund generated for you. Didn't matter that it yielded 5%. All that did was increase your total return 5%. Sell that REIT fund or sell an equity fund, what is the difference when it converts to cash?
    I will say that if you or maybe old skeet is converting that yield distribution to cash to be used as withdrawal income, that seems to me to just be a convenient way to distribute that income for cash use. A nice idea but I don't see the difference of putting distributions back into the fund balance to let it grow and selling bits of the fund itself as needed.
    What I'm not trying to say is that high yielding funds like REITs aren't part of a well diversified portfolio. I think they can be. I'm just trying to say, when you convert that fund to cash, it is only total return that mattered.
  • Retirement: Why REITs Are Good Bond Replacements
    @Old_Skeet ,
    Thanks. That sounds like a perfectly sane and rational system. (I probably could have written that response for you. :))
    A plan, such as you and I both adhere to, serves many purposes. Two of the most important IMHO are: (1) It instills self-discipline & structure upon what might otherwise devolve into a haphazard approach, (2) It provides a clear and easy to interpret picture of how one’s investments are structured and how well different components are performing. The second is useful in deciding how much can be safely withdrawn yearly, as well as when / how to rebalance.
    Being a rather disorganized person, I’d be completely lost without a clearly written plan. The allocation model I’ve used for 20 years (with updating for age) must be a pretty good one - because anytime I’ve considered drastically altering it I’ve been drawn back to the existing plan. While many markets, IMHO, have appeared “dicey” to me for years now, I’d hate to have had everything sitting in “safe” money market instruments pulling 1-3% yearly over the past decade.
    Regards
    OH - The thread is about REITS. I’ve dabbled in the past in a REIT fund as one of the holdings in my “real assets” group (10% weighting). I’d prefer to buy them at depressed prices, as this asset has been through 2 or 3 nasty downtrends over the past 25 years that I’ve closely watched markets. But if you’re young and don’t mind the potential volatility they may be fine. Personally, I’ve vacated my small hold in one and moved on to some more depressed sectors.
  • The 2009 Effect
    @Simon makes an excellent point about how single years can skew figures. Regarding 2009, it would likely be more informative to include both 2008 and 2009 or neither. Volatile funds tended to crash harder in 2008 and surge higher in 2009 than other funds. These effects may have somewhat balanced themselves out.
    Another year to watch out for with respect to this fund is 2019. YTD it is beating its category by 25%, even more than the 23% by which it bested its category in 2009. And because 2019 is the current year, this one year of superb performance skews not only the 10 year performance figure, but the five, three, and one year figures as well.
    The growth of $10K to $101,253 (a total return of $91,253) is not the growth over 10 years, but the growth over nearly 11 years. Don't let M*'s new pages confuse you into thinking that they're presenting standardized figures.
    The growth over the past ten years is shown on this M* chart. $10K grew to $58,483. This chart shows that FSELX left its peers in the dust, even excluding all but 18 days (and fewer trading days) of 2009.
    The "new" M* performance page reports a 19.32% annualized 10 year rate of return as of Dec 13. That means that $10K grew to $10K x (1+ 19.32%) ^ 10 = $58,497. Give or take rounding, that's the same result as shown in the 10 year chart.
    Here's the chart for the fund for the two years 2008 and 2009. It shows that FSELX crashed and burned relative to its peers, let alone the S&P 500, but it also recovered faster and higher than its peers and the S&P 500. All curves are U shaped, with this fund looking rather impressive, at least for those with strong stomachs.
  • Pass the donuts
    One of mine - PRWAX - down 6.3% Friday ex-div. Pays est $3.85 on Monday, $3.63 of which is CG.
    https://stockcharts.com/h-sc/ui?s=PRWAX&p=D&b=5&g=0&id=p74874272899
  • The 2009 Effect
    Going....going....almost gone.
    On the main "Quote" page of every fund covered by Morningstar is a chart showing the growth of $10,000 over the last 10 years (for funds that are 10 years or older). In 18 days the return figure for 2009 will disappear. For many funds, especially in the technology and growth sectors, this will make an enormous difference to their headline 10 year total return.
    For example, FSELX returned an astonishing 85% in 2009. Yet in the decade since it has frequently lagged its category. Its standout performance in 2009 clearly contributed massively to its 10 year total return of almost $102,000.
    https://www.morningstar.com/funds/xnas/fselx/quote
    Personally, I'll be glad to see the figures for 2009 disappear. They have distorted the performance of many, if not most, mutual funds and ETFs. Hopefully, a more accurate picture will emerge from 2020 onward.
    Wishing everyone here a very happy holiday season.
  • Pass the donuts
    Thanks for the warning re PRWCX. BTW - OAKBX paid out yesterday. While I no longer own it, still track it.
    It’s not hard to spot the pastry after-the-fact. When a fund falls 5-6% in one day, that’s a good clue.
  • Pass the donuts
    Those who've been here long enough to recall Fund Alarm will recall this turn of a phrase. Some of my own funds are paying today. PRWCX and PRDSX are among them:
    PRWCX $1.82/share
    PRDSX $1.635/share.
    (You gonna eat that bear claw?)
  • Retirement: Why REITs Are Good Bond Replacements
    Everybody makes some excellent points. There are two different ways of looking at allocation that might be muddling the messages here. If “allocating” between taxable and tax-sheltered accounts (like IRAs) than it makes sense to keep income generating assets in the tax-sheltered vehicles, as income is normally taxed at higher rates than long term cap gains.
    What I have difficulty understanding sometimes is: within a total portfolio why it’s necessary to differentiate between the income producing assets and the rest? As @bee points out, what you really care about is total return. Now, albeit, income producing assets might possibly help smooth out the ride - making total return less volatile and more predictible on a yearly basis. But that really gets us into the second way of viewing allocation - as a way to reduce risk and volatility. So, while I now devote 25% of my IRA to two income producing funds (RPSIX, DODLX), it’s done strictly out of a desire to lower the downside risk and achieve more stable year-year total returns. That they churn out income isn’t what’s appealing to me. It’s the lower volatility and the fact that bonds often “zig” when equities and other asset classes “zag.”
    To each his own. If your method works for you, that’s what’s important.