RPHYX / RSIVX: New commentary explains mistakes that resulted in credit losses I’ve a different take on the Riverpark commentary. I’ve had an unwanted degree of familiarity for some time, with Verso, Newpage and the now-merged entity, due to my ‘day-job’. (and please excuse me, a lot of this is based on recollection). Riverpark’s explanation of the problems at Verso are incongruous with my perception/experience with them.
(Old-) Verso and the merged Verso have been bleeding cash perpetually. Without the merger, Verso would probably likely have had a “corporate event” already. Newpage itself, had entered, then emerged from BK a few years ago. Its trip through BK, allowed Newpage to de-lever somewhat. So along comes Verso, somewhat like a parasitic organism to extract Newpage’s cash to prolong its own existence.
Riverpark’s commentary states that Verso has “exceeded expectations with respect to achieving synergies (of the merger)”. I can tell you with certainty that is a (Verso-) management talking point they put out when their horrific Q2-2015 results came out. – Trying to seduce investors to have faith in a management team, DESPITE the poor results. Riverpark is just parroting Verso’s earnings release/presentation materials, presumably taking it at face value. I viewed the “exceeding expectations” comment from Verso as an indictment --- if they were ahead of the curve in terms of slashing costs, and STILL their reported results were so poor, then they must REALLY be in trouble – and presumably the low-hanging fruit of the synergies has been done. (So not much more to be done to help them.)
As part of the merger (which, I believe closed in January) they did some type of bond exchange. Seem to recall the effect of it was to cram down a principal haircut on some bondholders. In return, the bondholders got a token lump-sum cash-out payment (further draining the merged entity of needed liquidity!!), and higher interest rates on the “new” bonds, some/much of it PIK, not cash. Possibly also a lightening of covenants. Why would you want to lend to a borrower who is doing a principal haircut of its debt? Isn’t that a major red-flag?
A key problem is ownership – Verso is controlled by private-equity firm Apollo. If memory serves, Apollo had large (likely controlling) stakes in both Newpage and Verso. Apollo has a particularly ugly history of asset-stripping companies which it controls, leaving them debt-hobbled to such a degree that servicing the debts eventually becomes impossible. The (predictable-) outcome occurs frequently enough with Apollo, that I view it as a standard Apollo business model. I’ve seen them play this game time and again. Verso, like Apollo’s prior ‘projects’ need not face bankruptcy – all that needs to happen is for Apollo to a)buy a substantial amount of Verso’s bonds at the steep discount provided by Mr. Market, then b) surrender it to Verso in return for equity. In this way, Verso could de-lever. It’s remaining bonds would no doubt substantially rebound in price, lowering its cost of capital.
But doing so, is not in Apollo’s playbook. They extract cash, they don’t contribute cash. I could readily cite other ‘red flags’ over the past year on Verso, but am running long. Attributing Verso’s problems to the regulators is diverting blame. By the way, why didn’t Riverpark mention Apollo, its control of Verso, and its sordid history with other investments?
I’ve a small ‘stub’ holding in RPHYX, having sold most of it earlier in the year as junk spreads kept widening. At that time, also sold a ‘starter position’ in RSIVX which was doing nothing. I was contemplating adding to my RPHYX position shortly, as I suspect junk may continue to be buoyed. Frankly, I’d no idea Verso was a significant holding of Riverpark’s. That it was (is ?) is troubling to me, given my familiarity with Verso -- Verso was never (in the past 3 years) a credit that a prudent portfolio manager would own – at least not without hedging it (possibly by shorting the equity).
After reading the Riverpark commentary, I am rather dis-inclined to add to my Riverpark position at this time. Their explanation of Verso is absent some critical understanding of what they invested my money in. Verso should have been a VERY EASY problem to keep out of the portfolio.
Sequoia Defends Valeant + Valeant's Pharmacy Dropped by Express Scripts and CVS Investor Ackman defends Valeant in 4-hour conference call
By Dean Starkman latimes.com
The brash billionaire activist investor, best known in California for his scorched-earth campaigns against Herbalife Ltd. and the management of drugmaker Allergan Inc., staged a high-stakes conference call to defend his latest cause: his huge investment in Valeant Pharmaceuticals International Inc.
Early last year, Ackman teamed up with Valeant in a bid to buy Allergan, the Irvine maker of Botox and other skin care products.
The bitter fight — including short-lived lawsuits — eventually sent Allergan into the arms of Irish firm Activis. Pershing Square walked away with a reported gain of more than $2 billion.
On Friday, Herbalife offered mock sympathy to Ackman over Valeant's woes.
"Unfortunately we have a great amount of experience in dealing with activist short-sellers," said Alan Hoffman, an Herbalife executive vice president. "We're happy to give Ackman some advice if he needs it."
In his long talk, Ackman answered nearly 200 questions sent by email from investors and reporters. But even as he talked, shares continued to fall. The stock has lost 63% of its value in the past three months, 48% of it this month. It lost $
17.73, or
17.7% Friday, to $93.77 in U.S. trading.
Pershing Square's roughly 6% stake in Valeant represents one the largest positions in the $
16-billion New York hedge fund operation.
Longtime Ackman-watchers said the conference call — so mobbed by investors and financial reporters that the call-in system suffered technical snafus — was emblematic of a high-risk, high-wire career made up of big bets punctuated by a series of dramatic public confrontations.
Ackman's investing style, while often riveting, is also source of frustration for his investors, said Erik Gordon, a professor at the University of Michigan's Ross School of Business.
"There are two Bill Ackmans," he said. "The public sees him as a guy who's obstinate to the point of ridiculous. Investors see him as a guy who can make them a lot of money. Their aggravation comes when they think about whether he could make them a lot more money if he wasn't so obstinate."
http://www.latimes.com/business/la-fi-ackman-investments-20151031-story.htmlhttps://www.google.com/finance?q=OTCMKTS:PSHZF&ei=fSI0VsjcA6W3iAKw_pDAAg
RPHYX / RSIVX: New commentary explains mistakes that resulted in credit losses Take a look at SCFIX (Shenkman Short Duration High Income Fund). Up to over $100m in AUM. Shenkman goes back decades in high yield and has a very loyal, deep following in the institutional world. Fits in the 1-2 year time period, cash good bonds. Low vol
Mutual Fund Ladder (vs a CD Ladder) Hi Bee,
From my posts you likely recognize that I love simple plans.
Consequently, my concept for a mutual fund ladder is far less nuanced than yours. In fact, I perceive my ladder as having only two rungs.
My ladder has a short term rung that has sufficient resources to withstand a major disaster or market drawdown, like 3 years worth of possible needs. A low cost short term government and/or corporate bond fund satisfies that requirement, like from Vanguard.
My other rung contains all my other mutual fund holdings. I contemplate holding them for at least one total market cycle to test their robustness against a bull and bear experience. I suppose that translates to a planned minimum holding period of 7 to 10 years, situationally dependent.
I'm a very patient investor.
Best Wishes.
Mutual Fund Ladder (vs a CD Ladder) I asked a question as part of a different thread, but thought it worthy of its own limelight.
Here's part of that thread:
rphyx-rsivx-new-commentary-explains-mistakes-that-resulted-in-credit-losses@David_Snowball commented on a possible alternative to RPHYX or RSIVX :
"...the best bogey I've got is Osterweis Strategic Income (OSTIX), which Mr. Sherman considers a legitimate peer. In their worst stretch, it took them nine months to recover from a drawdown. Since OSTIX is still below its previous high, the drawdown underway now might last longer. So maybe this is your "in a year or two" money, which implies judging performance over a couple year cycle."This got me thinking and I commented back to David:
"Just picking up on your thoughts for OSTIX as part of someone's "in a year or two" money. I went a bit further and added other time frames as well as other fund considerations to create kind of a "fund ladder"."For Less than 1 year money - PSHDX, BSBSX, FOSIX,
For 1 year money - RPHYX or RSIVX...or instead, maybe FIRJX or DLSNX
For 1-2 year money - OSTIX,
For 3-5 year money - PONDX, FAGIXAnyone have thoughts on what your "fund ladder" might consist of?"
WealthTrack Preview: Guest: Matthew McLennan, Co-Manager First Eagle Funds FYI:
Regards,
Ted
October 29, 2015
Dear WEALTHTRACK Subscriber,
Founding father Benjamin Franklin famously wrote “…in this world, nothing can be said to be certain, except death and taxes.” To that I would add another certainty:
change - and the world is changing rapidly.
Sometimes it comes from unexpected places. Hidden away in the budget bill that is making its way to the President’s desk is a Social Security surprise.
Two strategies to maximize Social Security benefits for married couples are being eliminated. We have talked about them with Social Security guru Mary Beth Franklin several times on WEALTHTRACK. One is “file and suspend,” where one spouse files for benefits but suspends collecting them until full retirement age, thus reaping the rewards of higher benefits down the road. It has also enabled the person to collect the accrued suspended benefits if they change their mind. The other strategy being eliminated is frequently done in tandem with file and suspend. It is when one spouse files a restricted claim for spousal benefits, while waiting until the last possible moment to start collecting their own Social Security, essentially being paid while they wait.
The good news is these benefits are being grandfathered in for those taking advantage of them now and there is a six month window for anyone eligible to take advantage of them once the bill is passed.
But as Mary Beth Franklin notes, “future retirees who are younger than 62- those born in 1954 or later- are out of luck.”
The other action adding to uncertainly this week was the Federal Reserve’s decision to keep interest rate policy unchanged, or at zero bound for yet another meeting. The Fed is hinting that its first interest rate hike since June 2006 will take place at the December meeting.
As last week’s guest Michael Hartnett of Bank of America Merrill Lynch pointed out global interest rates are at 5,000 year lows, and the developed world is currently experiencing one of the slowest and longest deflationary recoveries ever. Central banks around the world are engaged in an unprecedented wave of monetary easing to reverse that deflation.
As leading research firm Evercore ISI reported to clients, the balance sheets of the Bank of Japan and the European Central Bank are expected to expand an incredible 30% plus this year, and China has announced more than 70 fiscal stimulus actions so far this year.
Inflation in just about every country is MIA. The two notable exceptions are Brazil and Russia. Both are in recession and are grappling with high inflation.
How this will all end is anyone’s guess, but this week’s WEALTHTRACK guest is not taking any chances. Matthew McLennan predicts we are entering an era of increased crises. McLennan is Head of the Global Value Team at First Eagle Investment Management and Co-Portfolio Manager of several funds, including the flagship First Eagle Global Fund, which he has run since 2008. The global fund is in the top decile of its world allocation category over the last five and ten year periods and is known for its superior risk-adjusted returns, performing better in market downturns than its peers and benchmark index.
On this week's show McLennan will explain how he is building an all-weather portfolio to withstand future market storms.
The show is available to our PREMIUM viewers on our website right now and to everyone else over the weekend. You’ll also find an online only EXTRA interview
with McLennan about why he has made a point of devoting much of his free time to educational institutions.
Thank you for watching. Have a great Halloween weekend and make the week ahead a profitable and a productive one.
Best Regards,
Consuelo
RPHYX / RSIVX: New commentary explains mistakes that resulted in credit losses @David_Snowball,
Just picking up on your thoughts for OSTIX as part of someone's "in a year or two" money. I went a bit further and added other time frames as well as other fund considerations to create kind of a "fund ladder".
For less than
1 year money - PSHDX, BSBSX, FOSIX,
For
1 year money - RPHYX / RSIVX...or, maybe FIRJX or DLSNX
For
1-2 year money - OSTIX,
For 3-5 year money - PONDX, FAGIX
Anyone have thoughts on what your "fund ladder" might consist of?
RPHYX / RSIVX: New commentary explains mistakes that resulted in credit losses I chatted with Mr. Sherman a bit just before the publication of his quarterly letter. It seems to me that there are four factors weakening his relative performance:
1. mistaken judgments about three individual issues. On whole, those sort of goofs have been rare but when your performance edge might be fractions of a percent a year, they count. In this case, the goofs have cost nearly 380 bps. The fund trails its peers this year by 125 bps. He's written-off one, anticipates partial recovery in a second and hopes for full recovery in a third (Hunt).
2. herding in the high-yield space. In the first week of October, HY mutual funds saw $700 million in withdrawals but HY ETFs saw $1.4 billion in inflows. That dramatically boosted issues represented in the major ETFs but left orphan issues largely in the dust. It also may presage hot money trading in the sector.
3. a not-very-coherent peer group. Multi-sector bond, like "miscellaneous region," covered a huge variety of disparate strategies and asset allocations. In Mr. Sherman's case, his allocations differ dramatically from the peer group's in 16 of 17 bond sub-categories. On his allocation to BBB-rated bonds (21%) is typical.
4. a substantial commitment to ultra-conservative issues. About 40% of the portfolio overlaps the far more conservative Short Term High Yield fund and those issues aren't subject to the sort of rebound that longer-dated ones are.
The portfolio has a yield-to-maturity of 8.57%, rather better than its high-yield benchmark.
For me, the questions are (1) is there a systemic problem with the fund? And (2) what's the appropriate time-frame for assessing the fund's performance? I don't see one with the former, though we're scheduled to meet Mr. Sherman in November and will talk more. On the latter, the best bogey I've got is Osterweis Strategic Income (OSTIX), which Mr. Sherman considers a legitimate peer. In their worst stretch, it took them nine months to recover from a drawdown. Since OSTIX is still below its previous high, the drawdown underway now might last longer. So maybe this is your "in a year or two" money, which implies judging performance over a couple year cycle.
For what interest that holds,
David
Oppenheimer International Small Company Fund is changing its name http://www.sec.gov/Archives/edgar/data/1041102/000072888915001473/intlsmallcom497.htm497
1 intlsmallcom497.htm
OPPENHEIMER INTERNATIONAL SMALL COMPANY FUND
Supplement dated October 29, 20
15 to the Prospectus and
Statement of Additional Information, each dated December 29, 20
14
Important Notice Regarding Change in Investment Policy
This supplement amends the Oppenheimer International Small Company Fund (the “Fund”) prospectus (the “Prospectus”) and Statement of Additional Information (the “SAI”), each dated December 29, 20
14, and is in addition to any other supplements.
Effective as of December 29, 20
15:
1. The Fund will change its name to “Oppenheimer International Small-Mid Company Fund”. All references to “Oppenheimer International Small Company Fund” in the Prospectus and SAI are replaced by references to “Oppenheimer International Small-Mid Company Fund”....
********See link for additional information as there is too much information.********
Carne Hedged Equity Fund is liquidating http://www.sec.gov/Archives/edgar/data/315774/000143510915000983/carne_497e.htm497
1 carne_497e.htm CARNE 497E
CARNE HEDGED EQUITY FUND (the “Fund”)
Supplement dated October 30, 20
15 to the Prospectus and the Statement of Additional Information (“SAI”) dated March
1, 20
15
Due to economic and other factors adversely affecting the ability of the Fund to pursue its investment objective, including a recent large redemption and anticipated future redemptions, the Fund’s portfolio is being converted to cash. As a result, the Fund will no longer pursue its investment objective and is no longer accepting purchase orders for Fund shares.
* * *
For more information, please contact a Fund customer service representative toll free at (877) 356-9055.
PLEASE RETAIN FOR FUTURE REFERENCE.
RPHYX / RSIVX: New commentary explains mistakes that resulted in credit losses I'm inclined to concur with Derf. The comments about investment grade bonds also defaulting did not make me comfortable, especially since they seemed to be telling only half the story.
Sure there are few AAA rated US corporates now, but that could be because of the sovereign ceiling (generally corporate bonds are not rated more highly than their country's debt). Exceptions are rarely made, and only when it can be shown that a default by the nation would not adversely impact the corporation's ability to service its debt.
That seems hard to do for financials. The report made a point of saying no financials are AAA rated, yet
NY Life gets a AAA rating from three of four NRSRO. Only S&P rates it lower. Guess which ratings firm downgraded US sovereign debt.
There's a pie chart that purports to show that 25% of defaulted debt was originally rated investment grade. (The accompanying text says 26%.) But without more, one has to wonder whether this is a cooked number. It doesn't show the odds of investment grade debt defaulting vs. other debt defaulting. So it is useless in supporting the thesis presented that ratings are "less than indicative" of future defaults.
For example, suppose that $25B of debt issued (based on par value) were investment grade, and
1% of that defaulted over its lifetime. Suppose further that $6B of non-investment grade bonds were issued, and
12.5% of that defaulted over its lifetime.
You'd surely conclude that investment grade vs. non-investment grad was a good indicator of default probability. Yet there would be $
1B in defaults: $250M of investment grade, and $750M of junk. So, 25% of the defaults would have been investment grade bonds.
