FYI: There were two recurring themes at the annual InvestmentNews​ Retirement Income Summit in Chicago earlier this month: the economic impact of increased longevity and the need for guaranteed income in retirement.
Retirement has traditionally been described as a long-term investment goal. That's true for the accumulation phase. But as clients near the retirement-distribution phase, financial planning needs to shift to risk management and capital preservation.
Regards,
Ted
https://www.google.com/search?source=hp&ei=OcrrXLLfOszGsAWW2om4Aw&q=How+to+battle+sequence-of-returns+risk&oq=How+to+battle+sequence-of-returns+risk&gs_l=psy-ab.12..33i22i29i30.3194.3194..8730...0.0..0.347.440.1j3-1......0....2j1..gws-wiz.....0.mCqDITIbkQ8

In doing a recent Instant Xray analysis of my portfolio I am currently holding, within my equity allocation, a little better than five percent in emerging markets. The two emerging market funds that I hold are NEWFX and DWGAX plus some global asset allocation funds along with some other funds that have some emerging market exposure. I'm thinking, for me now being in retirement, a seven percent position in emerging markets would be all that I'd want due to their volatility and performance over the past five year period. In doing a five year look back, NEWFX has gained an average of 3.2% per year while DWGAX has lost an average of -0.8% per year. However, for the past three year period they have both performed with average annual returns of 10.4% and 6.50% respectively. With this, they both have been underperforming funds when compaired to other funds held within the growth area my portfolio. It will be interesting to see what the next five year period brings. For me, they are both considered a contrarian investment play.
From Xray, within equities, I'm currently 1.27% Latin America, 0.42% Europe Emerging, 0.49% Africa/Middle East, and 3.18% Asia Emerging which brings my emerging market exposure to 5.36%. With this, I've got room for some more emerging market exposure before reaching my seven percent threshold. I'm also considering adding to my commodity strategy fund as many emerging market economies are also major commodity producers.

just came across this; trying to figure out how long it might take to pay off (decades) ...
Africa has a population of 1.2 billion, with median age 18.
Europe has pop of 740 million, with median age 42.
Where would you invest?

"During the year ended December 31, 2018, the volume of the fund’s activity in options, based on underlying notional amounts, was generally between 8% and 15% of net assets."

In the back section for individual securities, the option written amounted to 0.4%, and that seems to be much smaller than the 8-15% of the net assets. Am I looking at two different items?

The quote is at the tail end Note 3, describing how options may be used. My guess, and it is only a guess, is that what you're seeing is the difference between notational value (how much impact an option has) with market value (the price of the option).
https://www.investopedia.com/ask/answers/050615/what-difference-between-notional-value-and-market-value.asp
Regarding the purported boilerplate nature of the Note: It jibed nicely with hank's original description, which sounded like covered calls (use of options to generate income at the cost of forfeiting upside potential).

Thanks to @msf for the SEC link. It’s much better than the (SEC) one I uncovered about an hour earlier - but still time-consuming and difficult to navigate. I managed to pull-up perhaps eight or ten reports for PRWCX. And thanks to @Sven for the opportunity to go back and do all the reading. :)
- Most significant is this reference to covered call overwriting by David Giroux in PRWCX’s Semi-Annual Report of June, 2013. (Since he references the last five years I saw no need to plow back through those earlier reports.)
“Before we review the portfolio, we want to briefly discuss the Capital Appreciation Fund’s covered call overwriting strategy, which we have employed for more than five years. Covered call overwriting involves buying a stock and then selling a call option—a contract whereby we agree at a future date to sell the stock at a predetermined (strike) price. In return for selling this call option, we are paid a premium (typically a 2% to 5% annualized incremental yield) that provides extra income to the fund. While the strategy caps our upside in an individual stock (usually 10% or higher), it provides incremental income that can enhance total returns, lower our downside risk, and generally has produced excellent risk-adjusted returns. Over the last five years, this strategy (a return combination of underlying stocks, calls, and dividend income) has generated a stronger return than the fund itself and has done so with less risk. However, in the first six months of 2013, this strategy produced subpar total and risk-adjusted returns mainly due to poor stock selection. Given the excellent long-term risk-adjusted returns of this strategy, we believe it will continue to play a meaningful role in your fund. As of June 30, 2013, we had calls written on about 14% of our equity holdings.”. https://www.sec.gov/Archives/edgar/data/793347/000120677413003000/srcaf_ncsrs.htm
- Another interesting reference involves futures positions in his Annual Report from December 2014:
“In addition, we have initiated futures positions in two European indexes that give us exposure to the European equity market, but we have effectively hedged much of the currency risk associated with these investments so that we have generated local currency market returns (and thus have a better risk-adjusted return for U.S. investors). The combination of these investments is still relatively modest at only about 3% of your fund’s assets and is unlikely to become greater than 5% under most circumstances.”. https://www.sec.gov/Archives/edgar/data/793347/000120677415000583/arcaf_ncsr.htm
- A breakdown of the fund’s positioning included in this (above) report shows -1% “options”. Adding up the numbers suggests that this -1% represents a short position in some security.
- There’s a reference to investing in leveraged loans in his June, 2017 Report. I don’t have knowledge of how risky these are - but it’s not something I’d normally have thought the fund a big player in:
“Our high yield and leveraged loan holdings have declined from 17.9% of assets at the end of 2016 to 13.1% at the end of June due to a combination of selective sales, maturities, bonds being called, and choosing not to consent to repricings of leveraged loans. While we are continuing to buy a couple of high-quality, idiosyncratic high yield bonds, we would still expect our exposure to decline in the second half of the year—in the absence of a correction in spreads.”. https://www.sec.gov/Archives/edgar/data/793347/000120677417002589/srcaf_ncsrs.htm
- On a final note, a recent move into Amazon was (by Giroux’s admission) far outside the fund’s normal (valuation driven) approach. My suspicion (only a suspicion) is that fund bloat may be one driving force behind this purchase:
“We readily acknowledge that Amazon is not a classic Capital Appreciation stock, as it lacks the traditional valuation support and easily quantifiable downside found in almost every other equity investment that we have made ... While Amazon is not classically inexpensive, the size of the market opportunity available and Amazon’s sustainable competitive advantage in both cloud computing and e-commerce make it unlike anything in which Capital Appreciation has invested before either. We strongly believe that our ownership of Amazon is in the best interests of our shareholders ...” . (December 2016). https://www.sec.gov/Archives/edgar/data/793347/000120677417000506/arcaf_ncsr.htm
PS - Getting late. If any of the above links don’t work or are inaccurate, let me know and I’ll make appropriate corrections.

@msf, thank you for the reference to the annual reports. I had read the manager's discussion section and have not located the statement above.

"During the year ended December 31, 2018, the volume of the fund’s activity in options, based on underlying notional amounts, was generally between 8% and 15% of net assets."

In the back section for individual securities, the option written amounted to 0.4%, and that seems to be much smaller than the 8-15% of the net assets. Am I looking at two different items?

@Sven - Just a follow-up to my above comments. I’m unable to locate the fund reports for PRWCX prior to 2018. The options strategy is not mentioned in the two most recent reports. If someone can help me find all the reports for PRWCX going ten years back I’d be glad to read all of them and highlight where the options strategy was discussed by Giroux. What I have provided below, and which might help, is an excerpt from the current PRWCX Prospectus which highlights writing call options as one of the risks the fund may undertake. I do recall mention of the options strategy bring beneficial to the fund’s performance sometime during the past 3-4 years - as well as in earlier years.
Re: “fancy footwork” - probably overstated on my part. But in reading his reports (even the one from Dec. 2018), an “opportunistic” and ever-evolving approach seems clear.
(Excerpt from Prospectus - PRWCX): “Options risks - To the extent the fund uses options, it is exposed to additional volatility and potential losses. Writing call options exposes the fund to the risk that the underlying security may not move in the direction anticipated by the portfolio manager, requiring the fund to buy or sell the security at a price that is disadvantageous to the fund. Certain call options carry a potentially unlimited risk of loss.” https://www4.troweprice.com/pcs/pcs-literature/mvc/USMFConsultantProspectuses/CAF/active/us/en/retrieveSingleDocument

@johnN, Ted posted an interesting article from Vanguard that is worth reading on that subject. In a nutshell, International, which I assume includes EM, should outpace US over the next 10 years, 8.5 to 5 percent. So, seems like over weighting international/ em may be the way to go.

@Sven,
I’ll try to locate my earlier source / reference on the derivative strategy sometimes used by PRWCX. It may take a day or so to dig that up. But it was primarily a strategy to generate income using stocks in some type of mutually beneficial contract with another party. The buyer of the option received a chance for upside potential should the stock increase in value. In return, PRWCX sacrificed some (or all?) of the stock’s upside potential in return for downside protection plus income. It was first mentioned 5-7 years ago by Giroux in a fund report. I haven’t read his reports recently. But just glanced at one tonight. While I can’t answer your question directly at the moment, how’s this excerpt (from Giroux) for honesty? It’s from the December 31, 2018 Annual Report for PRWCX. (It sounds like he’s being taken to “the woodshed” - and yet has nothing IMHO to apologize for.)
“We were disappointed in our investments in industrials, such as Middleby, a manufacturer of commercial food service equipment and high-end residential kitchen equipment. We bought it because the valuation and stock price had come down, management had a very good long-term track record on M&A, and, given higher labor costs at restaurants in a tight labor market, we felt that Middleby’s sales would benefit from a movement to substitute equipment for labor. From a process perspective, we made multiple errors that we do not intend to make again. First, we bought the stock without having met management. Assessing the quality of a management team is a very important part of our investment process. Second, earnings quality had deteriorated, with free cash flow conversion to net income dropping below 100%. Third, while capital allocation had been positive over the long run, recent acquisitions in the high-end residential kitchen equipment space had performed poorly.
“With GE, we started buying the stock right after the announcement that Larry Culp would become CEO. We bought too much too quickly given the risk profile of the company, and this hurt returns in 2018. We believe in GE and its new CEO and consider their aviation and health care businesses to be fundamentally solid. However, the initial position size should have been smaller, and we should have built the position more slowly. Again, we hope to avoid these mistakes in the future.”
https://prospectus-express.broadridge.com/m_document.asp?clientid=trowepll&fundid=77954M105&docid=2205655&doctype=ann&docdate=20181231&back=1

"During the year ended December 31, 2018, the volume of the fund’s activity in options, based on underlying notional amounts, was generally between 8% and 15% of net assets."
Annual Report, Dec 31,2018.
IMHO it's not the use of derivatives (including options) per say that can be a concern, but rather how they are used. As you noted, PIMCO uses them extensively - for boosting returns, for creating virtual leverage, etc. In contrast, FPINX makes extensive use of derivatives for defensive purposes, e.g. to reduce interest rate risk. I don't know what use PRWCX makes of derivatives.

Totally inspired by similar post on SFGIX...
I really know how to pick them.
HSGFX
FAIRX
now CGMFX
I've gotten back my principal some time back so have been letting this ride. However I have watched my current cost basis of $6000 go to as much as $7700 and now is at $5200 odd. YTD down over 15% YTD.
Now I know Heebner invests on a whim but can't believe he would be so out of step with things. Then I did something I normally don't do with this fund. I looked at the portfolio.
>45% in Emerging Markets as per M*. "WTF" does not begin to explain it.
How many idiots besides me still hold this fund? Please feel free to lie.

Hi folks... What should your distributions in EM be 5 to 10%?.. US MARKET may seem to be better bets long term but prob best to have both... Think we have roughly 5 or 6%in EM

@Edmond, my opinion is EM is one of the categories where returns will be better with a managed fund. Just my opinion, but also everything I've read agrees with that thought. Actual results will only be known 20 years from now.
My biggest argument when considering my own portfolio right now (being 65) is do I even need an EM fund. I hold SFGIX because I believe it is the least volatile approach to EM investing. But frankly, I don't believe SFGIX will outperform FMIJX (my 1 international fund) in most any time frame over 3 years.

That is a very interesting quote.
I don't have an interest in a portfolio manager who is happy to invest a lot of his AUM in China, but then (perhaps in a second of candor) seems to be agnostic as to the possibility of a crash in Chinese equities.
If one TRULY has a 20-year time horizon and is unconcerned about equity crashes, why not just invest passively? -- An investor can passively endure equity crashes without paying a useless management fee. For 20 years.

So a while back, Foster wrote an article saying that for a ~ 20 year horizon people need to load up on Chinese equities (or something along those lines). So that may dictate where him and his team will be investing. I know that FPIVX (not an EM dedicated fund) bought a lot of Brazilian equities a little while ago. Just an FYI. I hold both SFGIX, SFVLX and FPIVX. Foster also mentioned that if China does crash, then people (again with a 20 year horizon) should buy even more Chinese equities.

I was able to arrange things as I'd planned: though not a resident of Hawaii, I was able to open a 3-way account (joint) with the young man and his mother, at a local CU, in person. I will use it to feed the mutual fund from time to time. And if the worst should happen to me, there is nothing to worry about, legally. The account will simply carry on, in their names. The fund we're starting with will be BIAWX. If we are fortunate enough to NEED to branch-out, we will choose from the many suggested allocation funds offered here. We have just sent the mutual fund's application forms, too. If there are any glitches, surely they will let us know. I have urged the young man to begin an IRA. At his age, a Roth is the way to go. But at 18, it's a difficult thing to get him to FOCUS and think it through. I'm just an "honorary" uncle, anyhow. His mother is very smart, a good mother. Except re: finance. Like the vast majority, it seems. So... I live 5,000 miles away, at least for the present.

When something looks too good to be true (here, that's similar long term performance for 100% stocks or 60/40 mix, and even better for 70/30), one has to ask what's going on. Either something new has been uncovered or something has been hidden (inadvertently or not).
For the past 40 years, yields have been declining. So bonds have benefited from both appreciation (as yields drop, prices increase) and higher yields than now. At "best", yields have flattened out (as opposed to beginning a multi-year ascent), so one will have neither the appreciation nor the better yields of years past.
That's one factor hidden in plain sight.
Another factor, one that was better hidden, is the mix of large/mid/small cap companies that the market started with in 2000. If we take the current mix (using VTSMX as a proxy), that's 77/17/6. With no rebalancing, it returned 6.61% annually, for a final value of $34,462. With annual rebalancing (as done in the article with the hybrid portfolios), the pure equity portfolio returned 6.45% annually, for a final value of $33,465.
Both are significantly better than the $31K or less returned by the portfolios in the article.
But here I'm just as guilty of slight of hand as the author. I split the 100% equity fund into large/mid/small cap, but didn't do the same thing for, say, the 70/30 portfolio.
If one does that (54/12/4 and 30% bond), the 70/30 fund ends up with $32,785 (rebalanced). Still clearly inferior to the pure equity portfolio, but significantly closer. Without rebalancing, the 54/12/3/30 hybrid fund does not fare as well, ending with just $31,384.
The point is that there can be more going on than the numbers convey, even when the numbers are legitimate. Bonds served several purposes in the past (though less than the article suggests); it is more questionable whether they continue to serve them now. Though one cannot deny their psychological, "sleep at night" benefit.

FYI: The trade battle between the U.S. and China hasn’t just hurt American farmers and Chinese exporters; it has also hit U.S. investors who pumped $2.8 billion into China funds in the first four months of 2019 on top of the $6.4 billion they added last year. So far this month alone, Chinese stocks are down 13%, according to MSCI.
Many U.S. investors seem to have raised their exposure to China—despite the protracted trade dispute—largely in hopes of capturing higher future returns from the country’s brisk economic growth.
Regards,
Ted
https://www.wsj.com/articles/think-before-you-fish-for-bargains-in-chinese-stocks-11558710015?mod=searchresults&page=1&pos=1

https://www.marketwatch.com/story/the-richest-10-of-households-now-represent-70-of-all-us-wealth-2019-05-24?siteid=rss&rss=1
Meanwhile, the share of top 1% wealthiest increased to nearly 32% in 2018 from 23% in 1989.
I wonder how this can continue.

The dividing line is between those who could come up with $400, including using a CC and paying it off completely, and those who have to beg, borrow, or steal to cover an emergency.
I agree with @sfnative, that figures like these help remind us that so many people live paycheck to paycheck.
There will always be those who try to slough off such statistics. Cato tries to do this by pointing out that one of the questions asked people whether they would (not were able to) pay the $400 bill "out of savings (or checking) if they wanted to."
https://www.cato.org/blog/it-true-40-americans-cant-handle-400-emergency-expense-0
But Cato makes two errors. The minor one is that it cites last year's survey results, not the current results, dated May 2019.
The more serious error is that, unlike the Fed, it ignores the fact that "Even without an unexpected expense, 17 percent of adults expected to forgo payment on some of their bill in the month of the survey." Add to that the fact that "Another 12 percent of adults would be unable to pay their current month's bills if they also had an unexpected $400 expense that they had to pay. Altogether, 3 in 10 adults are either unable to pay their bills or are one modest financial setback away from hardship."
https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf (p. 21, pdf p. 29)
Think about that. Not that people wouldn't pay their bills, but that they couldn't. Even with borrowing.
There's a lot of interesting data in the Fed's report people's economic well being that goes well beyond whether people can handle an unexpected $400 expense.

@sfnative- In this neck of the woods going to Safeway or Costco without at least $100 is an emergency. To say nothing of two people going to any typical restaurant.