Krugman: “What all this tells us is that Republican positioning on economic policy has been in bad faith all these years.”
Nothing new here. Don’t need Paul Krugman to know that. Have already noticed they believe they can “scrounge up” 8.5 bill in unused funds to erect a glorified 18th or 19th century wall - apparently without raising taxes. While same folks can “explain away” food for hungry kids because: “there's no demonstrable evidence“ it helps their performance.
https://www.romper.com/p/trumps-budget-manager-says-feeding-hungry-kids-hasnt-been-proven-to-help-their-performance-45235
(By the way, the fella who did all this explaining has since been promoted.)

This looks at past motives, which appear to have considerable momentum:
https://www.nytimes.com/2019/05/04/opinion/the-sabotage-years.html

FYI: When I was a junior analyst at Sanford Bernstein nearly 25 years ago, our betters drummed into our heads that everything in the investment world went back to normal and that John Templeton was right when he said that the four most expensive words in the English language were “this time it’s different.” Bernstein had a sophisticated computer model that we referred to as the black box; its job was to tell us worker bees the most statistically cheap sectors every month. Like good worker bees, we would more or less automatically buy the stocks in those sectors and sell stocks in the most expensive sectors. The black box minted money for the firm and its clients for decades, precisely because everything did eventually return to normal. Cheap auto stocks appreciated to fair value, expensive tech stocks returned to average, and the investing world was good—safe and predictable. It was indeed dangerous to think “this time it’s different.”
Regards,
Ted
https://www.barrons.com/articles/reversion-to-the-mean-is-dead-investors-beware-51556912141?mod=past_editions

So what it looks like you're saying is that only AP's are allowed (able) to pull off this stunt and not your average everyday investor. True?

Any time a fund redeems shares in kind, it can dump the lowest cost basis (highest gain) shares. This tax maneuver not limited to ETFs, and anyone can buy/redeem open end fund shares.
Whether the fund will redeem in kind is another matter, but it is usually "allowed". For example, from FCNTX's prospectus:
"In addition to paying redemption proceeds in cash, a fund reserves the right to pay part or all of your redemption proceeds in readily marketable securities instead of cash (redemption in-kind). Redemption in-kind proceeds will typically be made by delivering the selected securities to the redeeming shareholder within seven days after the receipt of the redemption order in proper form by a fund."
As an investor, do you really want to get a basket full of securities instead of cash when you sell your mutual fund shares?

Junkster

I referenced this symbol back in January 2018 and have been following it since. While impressed with its performance, there is a caveat. It is prone to out of the ordinary daily trading gains. For instance most of its outperformance YTD can be attributed to an outsized daily gain one day in January. It was the same way last year where just a couple trading days contributed to its yearly gain. I worry that could cut both ways and you could see an outsized daily decline. Also, how much longer can the good times continue in securitized credit more specifically non agency rmbs.

The fund has a limited number of holdings because of its current size. So a move in a single security can move the fund’s performance on a daily basis. I would say that more than a few days influenced RCTIX performance last year, and most daily moves in most funds are noise.
In many cases, only a few days account for the performance of many investments.
For example if you missed the 20 best days in the stock market over the past 20 years(1/99-12/18) your annualized return was -.33% vs 5.62%.
Yes, in January they monetized a bond at a significantly higher price than the pricing services were pricing it at. Their investment thesis on the bond was realized faster than they had anticipated, and when they were offered a very attractive price, decided to monetize it.
Also, there's more to securitized credit than just non-agency RMBS. They don’t know how long the good times can last, but relative to other credit sectors such as investment grade or high yield, they think securitized credit and non-agency RMBS can still offer strong relative returns.
Non-agency RMBS won’t produce the returns they have in the past, but today they still offer good yields with capital appreciation opportunities. Housing continues to improve, borrowers continue to pay their mortgages, and loan to values continue to improve. So they think these underlying trends will continue to support the non-Agency RMBS market -- which I noted in my article.
JoJo26

That's what you get with less liquid underlying instruments... Honestly, a daily liquid mutual fund probably isn't the best package to offer a strategy that is largely structured credit.
If the fund gets larger and then subsequently sees large redemptions, it will be difficult to unwind positions without taking severe down marks.

With regards to liquidity, the fund has a 60% investment grade minimum specifically designed to meet the daily liquidity needs of investors. Between cash and Agency mortgage TBA’s over 60% of the fund could be in cash tomorrow.
Additionally, regarding the non-agency RMBS, there is strong demand for this paper, and it can be liquidated quickly as well. The sector has recovered substantially and trades very well.
Investors would be wise to consider fund size with regards to liquidity in non-agency RMBS. Many of the mega funds who would need to liquidate billions of dollars in Non-Agency RMBS would have a much more difficult time than a smaller fund such as RCTIX.
Last, RCTIX invests across the capital structure of the individual securities they own. In many cases, they've invested in the senior tranches of the structure. Also, the fund is not investing in odd lot securities that can be difficult to trade.
I hope that this additional information is helpful. I'm done reporting on the fund and moving on.
Best.

I'll try this another way. What follows is simplistic, but should suffice.
It's Jan 2; there's a new ETF. It wants to invest in stock ABC, trading at $12. So it sells its first share to an authorized participant (AP) in exchange for one share of ABC. The ETF share now represents 100% of a fund portfolio holding one share of ABC.
It's Dec 15; ABC is trading up 25%, at $15. Another two APs come along and each exchanges a share of ABC for a share of the ETF. There are now three ETF shares outstanding. Each represents a 1/3 ownership of the portfolio of 3 shares of ABC.
The unrealized gains in the portfolio are: $3 + $0 + $0 since the first share appreciated.
It's Dec 18; the ETF manager wants to swap all of the fund's ABC shares, trading at $15, for shares of XYZ, also trading at $15. He could sell ABC, realize a $3 gain, and buy XYZ. Then later in the month, when cap gains are distributed, whoever owned each of the ETF shares would get a $1 cap gain div. ($3 portfolio gain divided among three shares.)
But an AP holding one ETF share decides to sell back its one share. Using redemption in kind, the AP is handed one share of ABC. Not just any share, but the original, lowest cost-basis share.
Now you might think that, like gifting shares, that ABC share would carry with it its original $12 cost basis. Oh, lucky day. There's a tax law that says when you redeem in kind, the cost basis resets. So the AP has one share of ABC with a cost basis of $15. Cap gain? Poof, gone!
The ETF swaps the other two shares of ABC (with cost basis $15/share) for two shares of XYZ. No gain is realized by the ETF, and no gain is realized by the AP when it sells the share it just received.
-------------
Same example, but with a Vanguard fund.
It's Jan 2; there's a new fund. It wants to invest in stock ABC, trading at $12. It sells an Admiral class share to an investor for $12 in cash, and uses that cash to buy one share of ABC. The Admiral share now represents 100% of a portfolio holding one share of ABC, so it's worth $12. Exactly what the investor just paid for it.
It's Dec 15; ABC is trading up 25%, at $15, so the fund (with one share outstanding) is also trading at $15. A second investor comes along and buys one Investor class share at $15. The fund uses that cash to purchase a share of ABC. There is now one Admiral class share outstanding and one Investor class share outstanding, each representing a 50% interest in a portfolio of two shares of ABC (worth $30 total).
Same day; an AP comes along and exchanges one share of ABC for one ETF share of the fund. There are now three shares outstanding (one each of ETF, Admiral, Investor class), each representing a 1/3 interest in a portfolio holding three shares of ABC.
It's Dec 18; the fund manager wants to swap all of the fund's ABC shares, trading at $15, for shares of XYZ, also trading at $15. He could sell ABC, realize a $3 gain, and buy XYZ. Then later in the month, when cap gains are distributed, whoever owned each of the various shares would get a $1 cap gain div. ($3 portfolio gain divided among three shares.)
But an AP holding the one outstanding ETF share returns and sells back the share. Using redemption in kind, the AP is handed one share of ABC. Not just any share, but the original, low cost basis share.
Once again, the cap gains associated with that ABC share goes poof! Meanwhile, the fund is left with two shares of ABC (with cost basis $15/share). It swaps those for shares of XYZ. No gain is recognized by the mutual fund, and no gain is recognized by the AP when it sells the ABC share it just received.
-------------
All the magic is with the ETF. The OEF shares are simply along for the ride.

FYI: The “Fastest Two Minutes in Sports” is on Saturday at Churchill Downs in Kentucky. Since the founding of the race and racetrack (in which the company draws its name) in 1875, Churchill Downs Incorporated (CHDN) has branched out to a number of other lines of business including ownership of other race tracks and casinos around the US in addition to online gambling sites. CHDN has been like Secretariat over the last decade, posting a "10-bagger" by rising more than 10x in value since its low in 2009.
So how does the stock perform around "Derby Day" specifically? In the past 20 years, the period leading up to the Kentucky Derby has typically been pretty shaky for the stock with declines in the month and week leading up to the race. Historically, in the month before the derby, CHDN has only risen 28.57% of the time with an average decline of 2.26%. The week before has been slightly better, but still declines over half the time. This year bucked the trend, though, with the stock rising 12.11% over the past month and 6.91% in the past week; similar to 2016.
Regards,
Ted
https://www.bespokepremium.com/interactive/posts/think-big-blog/churchill-downs-chdn-off-to-the-races

FYI: Norway’s $1.1 trillion sovereign wealth fund, the world’s largest, made record returns on investment in the first quarter amid a surge in tech stocks.
Separately, the fund is assessing whether to make an investment in ride-hailing company Uber Technologies Inc, which is planning an initial public offering, its chief executive told Reuters.
The fund earned 738 billion Norwegian crowns ($84.15 billion) for the January-March period, the highest amount it has ever recorded.
When measured in terms of the fund’s international currency basket, the return for the quarter stood at 9.1 percent, beating its benchmark, it added.
Regards,
Ted
https://www.reuters.com/article/us-norway-swf/norways-wealth-fund-made-record-returns-in-first-quarter-looking-at-uber-ipo-idUSKCN1S9132

Hank I agree!! I used to love reading USNWR -- and the old Business Week -- back in the '80s and '90s when in high school, college, and beyond. Since then both publications have deteriorated considerably and I long-since gave up reading them. :/

U.S. News tends to be big on “splashy” headlines nowadays and low in quality. A step above the financial porn served up by the now defunct Money Magazine - but not by far. They’ve taken a once reputable name in news (the long extinct U.S. News & World Report) and converted it into some remotely related online publication. I’d much rather do my own investigating by digging through actual prospectuses and annual reports (from the fund companies) and the fund data and analysis from the likes of Lipper, Morningstar, Max Funds and, of course, at MFO. If you can get 3 of those to agree on a fund’s desirability, it’s probably worth considering.
The article takes a scatter-shot approach. Why on earth would a younger 401-K investor want to hold a corporate bond fund? Index 500 = duh. I’m not opposed to holding index funds, but they’re pretty much all the same - save for fees. Yes, VG is a low cost leader, but you hardly need third party “study” or “recommendation” to know that.
I long for the days when as a “nerdy” teen I subscribed / eagerly anticipated my weekly copy of U.S. News & World Report. Money was tight growing up. I typically devoured these cover to cover twice before discarding. While conservatively slanted, you couldn’t beat it for covering the week’s hard news.

I’m unable to access the article. But the elephant in the room here would appear to be: What’s the rest of the money invested in? For someone heavily allocated to aggressive growth funds, a higher cash level might be appropriate. But, if you’re holding a lot of balanced, diversified income or asset allocation funds, than those already hold some cash (or short term bonds) and so your own cash allocation might not need to be as high. Like so many other questions postulated here, the answer can only be answered in context.
Personally, I target 15% in my static allocation (possibly appropriate for the 70+ crowd). That’s not strictly cash, however. Also includes some short-term bond funds. I’ve considered taking it down to 10% and putting the 5% into something a bit more aggressive like TMSRX at T. Rowe. That fund should pull a couple percent higher than cash over intermediate term (3-5 years) without a whole lot of additional risk from what I can see. But there’s more liquidity with cash. So I’ll let it rest.
While cash isn’t trash, If one can afford even a modicum of fluctuation in value (and dispense with FDIC backing), there are better alternatives.

U.S. News tends to be big on “splashy” headlines nowadays and low in quality. A step above the financial porn served up by the now defunct Money Magazine - but not by far. They’ve taken a once reputable name in news (the long extinct U.S. News & World Report) and converted it into some remotely related online publication. I’d much rather do my own investigating by digging through actual prospectuses and annual reports (from the fund companies) and the fund data and analysis from the likes of Lipper, Morningstar, Max Funds and, of course, at MFO. If you can get 3 of those to agree on a fund’s desirability, it’s probably worth considering.
The article takes a scatter-shot approach. Why on earth would a younger 401-K investor want to hold a corporate bond fund? Index 500 = duh. I’m not opposed to holding index funds, but they’re pretty much all the same - save for fees. Yes, VG is a low cost leader, but you hardly need third party “study” or “recommendation” to know that.
I long for the days when as a “nerdy” teen I subscribed / eagerly anticipated my weekly copy of U.S. News & World Report. Money was tight growing up. I typically devoured these cover to cover twice before discarding. While conservatively slanted, you couldn’t beat it for covering the week’s hard news.

Probably 15%in mom retired portfolio (unaccounted for 12 months emergency funds of course)

http://www.barrons.com/mdc/public/page/2_3053-quarterly_A-quarterly.html
1/4/19 was the last online WSJ Quarterly Mutual Fund Report. It now has the Barron's heading, but hasn't been updated since then.

FYI: Should I hold a cash reserve in retirement? If so, how much? And, if you’re willing to share, do you have a cash reserve as part of your retirement savings?
Sure. Happy to share. But let’s start with some background.
Regards,
Ted
https://www.wsj.com/articles/how-much-cash-should-you-hold-in-retirement-11556805424?mod=md_mf_news

@ hank; Check this headline.
M*: 5 Steps To A Refreshed, Rebalanced Portfolio
Recently posted here.
Derf

                           Fund 1   Fund 2
Securitized                80.22%   70.81%
Agency MBS Pass-Through    18.39%   14.86%
Agency MBS ARM              9.35%    0.01%
Agency MBS CMO             10.46%    2.31%
Non-Agency Residential MBS  4.33%   12.31%
Commercial MBS              0.00%    5.02%
Asset-Backed               37.69%   34.39%
Covered Bond                0.00%    0.49%

Would you consider one of these funds significantly more or less risky than the other? If your focus is on non-agency RMBSs, would you consider Fund 2 higher risk?
To my less discerning eye, these look pretty similar, though in a broad sense it seems Fund 1 concentrates a bit more on Agency MBSs (of all stripes) than non-Agency MBSs (of all stripes), while Fund 2 does the reverse. They are both more than 1/3 invested in ABSs.
(Figures are from M*; Fund 1 is dated 3/31/19; Fund 2 is dated 12/31/18.)

River Canyon is having the minimum amount for a regular account updated from 100K to $2500. The change does not yet appear on the Fidelity website.
The minimum amount for an IRA is $0, which has not changed.
Fidelity has a $49.95 TF.

Virtually everything in the article is simply a description of how ETFs make cap gains magically disappear. This is why ETFs are marketed as "tax efficient".
All that Vanguard did was make an ETF that owns the same underlying portfolio as Admiral class and Investor class shares. So when the ETF shares make cap gains disappear from the portfolio, there are no cap gains to distribute among the shareholders - none to the ETF class shareholders, none to the Admiral class shareholders, none to the Investor class shareholders.
A very quick search (for Vanguard VIPER patent) turned up this article. Not great, but it does cover what I wrote above, and was published in 2005.
http://www.exchangetradedfunds.com/news/190905Vanpatent.html

Unlike other ETFs, the Vipers, or Vanguard Index Participation Equity Receipts, are separate share-classes of Vanguard's index funds. In contrast, rival firms' ETFs are "stand-alone" funds. ...
Vanguard claims a symbiotic relationship exists between the Vipers ETFs and the index funds. ...
The way in which all ETFs create and redeem shares provides tax benefits. ...
First, ETFs are not forced to sell stock and raise cash to meet investor redemptions, which can result in distributing capital gains to remaining shareholders. Plus, the in-kind redemption process enables the manager to offload stocks that have risen in price, allowing the ETF "to flush out unrealized capital gains from the portfolio on an ongoing basis, assuming there are sufficient redemptions to do so," ...
As a result, the Viper ETF share class enables the manager of the corresponding index-fund class to "wash out" potential capital gains in the mutual fund.

This is ridiculously old news.
Many Vanguard index funds come in three classes: Investor (now closed), Admiral, and ETF. Two of those are purchased directly from Vanguard (or from Vanguard via a brokerage), one is purchased the same as a stock.
They are just different ways of owning, buying, and selling the same underlying fund.
VT, VOO, VTI, etc. are merely share classes of Vanguard World Stock Fund (VTWAX), Vanguard 500 (VFINX, VFIAX), Vanguard Total Stock Index (VTSAX), etc.
If you think the idea of wiping out cap gains by dumping them off on authorized participants and in the process making them disappear is fishy, according to the article, so does Gabelli.

(The Closing Bell will be updated sometime after 4:00 PM CDST to include the latest updates from IBD and Bloomberg Evening Briefing.)
FYI: U.S. stocks swung between small gains and losses after the Federal Reserve left interest rates unchanged and reiterated it will stay patient with rates amid a mixed economic backdrop.
The Dow Jones Industrial Average edged down 162 points, or 0.61%, to 26429, having entered Wednesday’s session 0.9% below last year’s record. The S&P 500 fell 0.75% on the first day of trading in May, with stocks coming off one of their best four-month starts to a year ever. An advance Wednesday would mark the S&P 500’s fourth consecutive record close. The broad equity gauge is up 17% for the year.
The tech-laden Nasdaq Composite lost 0.57% and was slightly below Monday’s record.
The central bank noted Wednesday that some key economic activity slowed in the first quarter, potentially boosting confidence that it won’t change its stance as investors weigh a mixed stretch of data. Many expect upcoming economic figures to dictate’s the Fed’s next change in rates, a trend that has pushed investors to seek out risk across asset classes.
One of the most recent economic data points troubling some analysts was the Institute for Supply Management’s manufacturing index for April, which came in softer than economists had expected Wednesday, signaling a slowdown in factory activity.
Prices of copper, oil and other materials vital for the construction and transportation industries fell, a sign that some investors remain wary of a decline in economic activity or setback in U.S.-China trade talks.
The S&P 500 energy and materials sectors fell about 1% Wednesday, with U.S. crude-oil prices declining after inventory figures showed a larger-than-expected increase in stockpiles last week.
Figures Wednesday also showed the U.S. private sector added 275,000 jobs last month, nearly 100,000 more than consensus expectations. Analysts were looking ahead to Friday’s jobs report for the latest gauge of hiring across the U.S. economy.
The yield on the benchmark 10-year U.S. Treasury note also fluctuated and was recently at 2.502%, according to Tradeweb, down from 2.505% a day earlier. Bond yields fall as prices rise and tend to decline when investors are worried about economic growth and seeking safety in ultrasafe Treasurys.
Meanwhile, shares of Apple , CVS Health and Mondelez climbed following the companies’ first-quarter earnings results, the latest example of better-than-feared numbers boosting stocks.
Apple shares climbed 6.6% after the iPhone maker posted a smaller-than-expected drop in quarterly profit and sales. The company also said a downturn in China showed signs of easing, an encouraging sign for investors still wary of slowing economic activity overseas.
Although Google parent Alphabet tumbled Tuesday following its first-quarter results, Apple joined Amazon.com, Microsoft, Facebook and Twitter in the group of leading internet stocks to rise following earnings reports.
Stock markets in Japan, China, Korea and across most of mainland Europe were shut for the May Day holiday, but with Danish and U.K. stocks trading, the Stoxx Europe 600 inched down less than 0.1%, extending a stretch of quiet trading.
Regards,
Ted
MarketWatch:
https://www.marketwatch.com/story/stock-futures-point-to-more-records-as-apple-results-cheer-investors-2019-05-01/print
WSJ:
https://www.wsj.com/articles/global-markets-quiet-for-may-day-ahead-of-fed-decision-11556698081
Bloomberg:
https://www.bloomberg.com/news/articles/2019-04-30/stock-futures-rise-on-apple-dollar-yields-dip-markets-wrap?srnd=premium
IBD:
CNBC:
https://www.cnbc.com/2019/05/01/stock-market-federal-reserve-meeting-outcome-in-focus.html
Reuters:
https://www.reuters.com/article/us-usa-stocks/wall-street-pauses-ahead-of-fed-decision-after-apple-led-rally-idUSKCN1S73R3
U.K.:
https://uk.reuters.com/article/uk-britain-stocks/oil-firms-exporters-drag-ftse-100-while-sainsburys-lse-outshine-idUKKCN1S73BP
Europe: (Closed)
Asia: (Limited)
https://www.marketwatch.com/story/australian-stocks-rise-with-most-asian-markets-closed-for-holiday-2019-04-30/print
Bonds:
https://www.cnbc.com/2019/05/01/us-bonds-federal-reserve-meeting-in-focus.html
Currencies:
https://www.cnbc.com/2019/04/30/forex-market-china-pmi-data-fed-meeting-in-focus.html
Oil:
https://www.cnbc.com/2019/05/01/oil-markets-us-stockpiles-global-markets-in-focus.html
Gold
https://www.cnbc.com/2019/05/01/gold-markets-equities-the-fed-in-focus.html
WSJ: Markets At A Glance:
https://markets.wsj.com/us
Major ETFs % Change:
https://www.barchart.com/etfs-funds/etf-monitor
SPDR's Sector Tracker:
http://www.sectorspdr.com/sectorspdr/tools/sector-tracker
SPDR's Bloomberg Sector Performance Pie Chart:
https://www.bloomberg.com/markets/sectors
Current Futures:
https://finviz.com/futures.ashx