I respectfully disagree with some attributes ascribed above to PSLDX, while acknowledging that it has significantly outperformed funds that could nominally be called its peers.
While PIMCO dates its StocksPLUS strategy to
1986, this strategy is "used across [its] “PLUS” portfolios". The first PIMCO fund to use this strategy was PSTKX in
1993; PSLDX dates back only to 2007. MWATX, previously mentioned, started in
1998.
https://www.pimco.com/en-us/investments/mutual-funds/stocksplus-fund/insthttps://www.pimco.com/en-us/investments/mutual-funds/stocksplus-long-duration-fund/instThe bond holdings in PSLDX strike me as less opaque than those of most PIMCO funds. It's in the name: long duration. No secret sauce. This fund,
by mandate doesn't significantly alter its bond bets. Rather, this fund will soar (at least its bond portion will) as interest rates decline, and will crash as rates rise.
[Effective duration is calculated by starting with modified duration (a well-defined, mechanical calculation based on coupons and maturities). One or more models are then used to estimate the duration effects of all the oddities of the bonds.]
For this fund, effective duration = modified duration =
14.57 years (per M*). So there's very little going on outside of (long) vanilla bonds. Looking at the holdings, PIMCO appears to be tweaking around the edges with derivatives to adjust the bond portfolio attributes slightly.
The 2x strategy (or StocksPlus strategy) gets
100% exposure to stocks at minimal cost by buying swaps on the target stock index. It then uses the remaining cash (almost
100%) to invest in bonds. DSENX is
100.69% long in stocks, 9
1.32% long in bonds, and short in cash by a similar amount. That's the way it's supposed to work.
PSLDX goes further and adds even more leverage. You've still got the
100% stock exposure through swaps (M* says
102.3
1%). But the bond portfolio is leveraged:
127.69% per M*. So not only is this fund heavily exposed to interest rate risk (with its long bonds), but it is doubling down with leverage. Okay, it's just
1&frac
14; x down; same idea.
Because the fund must hold long bonds, there's no secret sauce here, or none worth mentioning. Just very long bonds combined with extra leverage on the bond side.
FWIW M* classifies this fund as a hybrid (85%+ equity), while PSTKX, DSENX, and MWATX are classified as large cap blend funds. I suspect that's because the leverage on the bond side increases the bond exposure to the point that M* won't consider it a stock fund with just a bond kicker.
If one is confident that rates won't rise
at all for some time and that the yield curve (whatever little curvature there is) won't begin to curve a little more, then going long makes sense. Otherwise, those scenarios will crush this fund, at least relative to the others or to a vanilla stock fund.
NTSX differs in several ways. Instead of 2x, it is
1.5x. Instead of 50/50 stock/bond exposure, it's 60/40. It does not have flexibility in allocating bond sectors; its only exposure is to Treasuries (via futures). Its target duration is 3-8 years, typically less than half of PSLDX, though I suspect more than that of the other funds. But it does actively manage duration.
Its blurb touts the ability of the
1.5x strategy (90/60) "to enhance returns" by investing the the extra 50% (
1/3 of the portfolio) in "noncore assets such as long/short equities, risk parity, CTAs, or true alternatives." However, upon reading further, one finds that the fund itself "invests 90% of its net assets in the 500 largest U.S. stocks by market capitalization" and "60% notional exposure to U.S. Treasury futures (2-, 5-,
10-, 30-year ladder)."
That's not the same as the S&P 500 (which is not a compilation of the 500 largest US companies); nor does the prospectus even mention 500 companies. Rather "The Fund invests in a representative basket of U.S. equity securities of large-capitalization companies generally weighted by market capitalization." (
Prospectus.) It invests directly in stocks rather than using swaps. That enables it to actively manage its equity side - another point of differentiation from the OEFs mentioned.
Over its short life it has done nicely. Much (not all) of its performance seems to be due to leveraging. If one takes VBIAX's
annulized performance over the past 2
1 months (the lifetime of NSTX), calculates its monthly performance from that, leverages 50%, and compounds that, one gets an annualized performance of
10.45%, still measurably below NSTX's
11.23%.
