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One of the ways I chose to help manage interest rate and credit risk in the income area of my portfolio was to split my income sleeve into two parts. One part holds three short term bond funds: LALDX, THIFX & ITAAX and the other part holds mostly strategic income funds: LBNDX, NEFZX & TSIAX. In the hybrid income sleeve, I hold six funds: CAPAX, FKINX, ISFAX, PASAX, PGBAX & AZNAX. Year-to-date the income sleeve has returned 1.75% while the hybrid income sleeve has returned 2.25% through 2/28/2014.
Through the years the sleeve method has worked well for me. Should one of the funds within the sleeve falter then there are the other funds that offer production to continue to propel the sleeve. In 2013, PASAX faltered however there were the other five funds that continued to propel the sleeve.
I developed my sleeve (team concept) while I was at summer boy scout camp years back where I earned a merit badge in canoeing. I observed if there were only one paddler in a canoe then canoes with two paddlers could propel themselves faster than the canoe with only one paddler. And, if there were three paddlers working as a team, then they could move even faster over the canoes with two paddlers. So it seems that the three paddler team was the charm and this has stuck with me through the years. This seems to have worked well for me with investing. So for me, I choose a tri pack format when possible ... and, at times I'll duce that. In addition, I used this strategy at the dog track where I'd bet three dogs to win, place or show. My winnings were much higher with this strategy over the single bet strategy.
@old_skeet, you could make a case that you are managing manager/strategy risk by diversification but such diversification when compared to a correct index in allocation and risk will underperform, especially with the high fees being paid. Just a domestic total bond fund has returned 2%+ in that period.
The rationale seems very much like the lazy portfolio creators whio kept claiming for years that their portfolios beat the S&P every year. Sure when you add components that take more risk than S&P 500. I don't mean disrespect and this is a serious question, are you sure you aren't fooling yourself that it is "working"?
You come across, to me, as a well schooled “Wall Street” type knowledgably person. While I am an average “Main Street” type person. My strategy when applied to my portfolio has out performed both Fund Yardsticks Indexes “Balanced” and “Stock & Bond” funds. At times I have bettered the Lipper Balanced Index. I usually trail it in up trends due to my usualy held large cash position and usually better it in down trending markets as cash acts as a dampener.
To offset the additional cost factor over an Index fund I only try to hold category leaders. Over the past five years through December 31, 2013 I had an average annual return of better than 16.5%. This was done with mostly what Morningstar would classify a conservative allocation portfolio with assets ranging in the 5% to 20% range for cash, 25% to 35% range for fixed income, 40% to 60% range for equity and 0% to 10% range for alternatives over the past five year time period. No doubt the asset allocation moved within these ranges during this time span and varied form time-to-time. Seems the Yardstick Balanced Index returned just short of 12% and the Stock & Bond Index returned just short of 11% over the like five year time period. I am showing that a 50%/50% portfolio compiled of both a stock and a bond index funds would have have offered about a 14% annualized return over the same period.
So, was it the strategy, asset selections, and/or fund selections that was responsible for the out size performance over the Yardsticks or some combination or all of the above, or even more things including the special investment strategies, offered by the Moose and Ron Rowland’s Leadership Strategy, that contributed? Or, pehaps it might even have been good risk management of assets on my part. Over the past five years I have diaded down my exposure to equities as they have advanced in price and dailed down my exposure to fixed income along with reducing bond duration plus increased my exposure to alternatives.
In any event, the 16.5% average five year return came from a real live portfolio. And, as a result I am a most happy camper.
Not sure what Walk Street vs Main Street has to do with it. Both can equally fool themselves.
I would attribute any over performance if it really exists to allocation skill or luck or both or to a bad benchmark.
But seriously, the more complicated you make it, the easier to fool yourself that it is working. I am not saying you are necessarily, but there is an aspect of free lunch with "sleeves" in there that seems self-fulfilling.
For years I used a similar style of investing although my sleeves were what I referred to as buckets. Each mutual fund was a bucket. That made it easier for me to visualize and to explain to others. My contributions were the garden hose and the objective was to fill the buckets. As one fund would outperform others I would redirect funds into the other buckets so to speak. As long as I had confidence in the funds and the allocation I made, there were no changes.
Of course this was during the 90's so pretty much any style would work. In certain cases like the Japan dead cat bounces or the rise in gold, I would skim profits off those funds and direct that into BGNMX which was a consistent workhorse of a fund. In the case of gold when it was going up like crazy I did this a few times. That GNMA fund provided additional returns at a much safer risk.
I have always viewed investing as having a luck component. Right after the Sept. 11 attacks, I put a decent portion of my portfolio into gold. The rest was history. If my decision had failed I had only myself to blame and always learned from them. Old Skeet is happy with his results and that is what matters in the end.
Downside protection is not all that great with these funds in challenging environment for bonds such as 2013. Same goes for those "risk parity" theme based funds.
There are familiar names among multi-sector funds such as Dan Fuss's Loomis Salyes bond, LSBRX. It holds about a third of Canadian and European bonds; the rest in corporate, high yield, and ~15% in stock.
Ballast is ballast in an overall portfolio, eh? Our house's greatest concern is when Fuss leaves and who will continue to manage PIMIX / PONDX at Pimco. One can't complain about bond performance from either fund during 2013 or 2011 when there was a bit of stink in the equity area starting in late summer. One won't fly the most high flag with either of these; but can not dismiss their longer term returns. The majority of folks should be pleased with such returns over their investing lifetimes. Luck or skill.
Ballast is ballast in an overall portfolio, eh? Our house's greatest concern is when Fuss leaves and who will continue to manage PIMIX / PONDX at Pimco. One can't complain about bond performance from either fund during 2013 or 2011 when there was a bit of stink in the equity area starting in late summer. One won't fly the most high flag with either of these; but can not dismiss their longer term returns. The majority of folks should be pleased with such returns over their investing lifetimes. Luck or skill.
Regards, Catch
Dan Fuss is over 70 year old. The fund is co-managed with two managers. Each have their own track record (at least 10 years). Thus there is less of concern on transitioning when Dan Fuss retires. His long time co-manager, Kathleen Gaffey, now manages Eaton Vance bond, EABAX, with similar approach. With less than one tenth of LSBRX asset size, it outperformed LSBRX in 2013. It is likely to able to move in and out of different sector easier. I think this is a solid alternative to LSBRX. At present, the fund is available with load waived at Fido. Don't know the same if this is offered elsewhere.
On the same note, Pimco is undergoing many changes - many does not look good. We all need some exposure to bonds in order to keep the portfolio afloat. The question is how much risk you are willing to take and how much you want to pay for those erotic funds?
@cman I'm not sure what index you consider an appropriate benchmark, but morningstar uses Barcley US Aggressive Bonds. LSBDX blows away this benchmark over all periods over and including 1 year. Can't remember when I bought this without looking it up. But I'm 89.9% sure, it is at least 5 years that I've held it. I reinvest all dividends and other distributions.
@Maurice, I won't be surprised if an active fund beats a suitable index. It doesn't even matter if the manager strays a bit or takes a little more risk as long as the volatility is similar in a practical sense. There are many funds that do this. All the studies which conclude otherwise are based on averaging over the entire fund universe or requiring that they beat the index every year which doesn't reflect any practical reality/requirement. So, not one of the religious cults that go out of their way to deny any such possibility.
But buying such an active fund does entail taking manager/strategy risk. That is OK with me too. I don't see much difference between that and taking more beta exposure risk in an index as long as the returns are commensurate.
My earlier comment in this thread is for a suggestion that diversifying across multiple such funds in case one of them falters may increase the performance over the index. It only helps manage the manager/strategy risk and reduces volatility if any of the funds do go through bad patches and that is a desirable benefit on its own.
But there is a cost in performance unless each of them over performs its relevant index, in which case the diversification was unnecessary or it was measured against an incorrect index to represent the combination.
The more complex/varied/numerous the funds so combined, more difficult to determine if the fund collection actually helped or hurt and easier to fool yourself that they did relative to a simple index portfolio with similar beta exposure.
This is a problem with all kitchen sink portfolios.
>> Over the past five years ... I had an average annual return of better than 16.5%. This was done with mostly what Morningstar would classify a conservative allocation portfolio with [a minimum of 30% in cash/bonds and a max of 60% stocks].
Well, Skeet, you should run a fund, if this is an accurate representation. By your M* characterization is implied no HY fund (FAGIX was up 70% in '09, e.g.) --- correct? Now, the last five years have been awesome, true, even, as you note, for 60/40 and 50/50 funds, but if what you write is so, both the math and the M* adjective, some details would be welcome. You appear to have nearly matched and sometimes outdone even Romick, Intrepid, D&C, the Jameses, Fido, Weitz, and some others. Pray tell more.
Thanks for your comment and noting your observation.
You are right about the returns and it has not gone unnoticed by my brokerage firm as they are the ones that did the tracking and the reporting of the five year return number on my portfolio. This also caught their eye. I don’t know about the fund managers that you referenced … but, I do know I did better some of the major fund houses with respect to their conservative, moderate and world allocation funds. I compared my results against some major funds for the same five year period ending 12/31/2013. Their results were FKINX 15.27%, CAIBX 11.61%, TIBAX 15.10%, AMECX 14.27%, ISFAX 14.08%, LABFX 14.06%, CAPAX 13.38%; but, AZNAX nipped me out with a return of 17.87% along with DDIAX with a return of 16.55%. I was at 16.51%.
Being a former corporate credit manager helped me with some skill level concerning risk management along with my sleeve investment system and its mythology played a role in this. In addition, putting money in out of favor assets when I felt they were oversold and then trimming these positions back when they became more in favor and overbought also played a role in this. Plus this has been one of the best bull market runs of all time which was also a plus. The only year I stumbled was 2011 where I eked out a small positive return. The other four years were fair sailing for me.
As a boy scout I learned quickly how to paddle a canoe upstream by finding calm waters to advance and then how to navigate the fast current in moving down stream. In simple terms I applied this knowledge learned to investing and have carried it through life in other endeavors.
Now you know why I continue to say … I am a happy camper.
16+% over the last 5 years with 2008 rolling off is not that inconceivable given that a simple 60/40 split portfolio returned about 14% in that period. Risk was well rewarded not punished during that period and even many mistakes made money.
As to how much value was at risk during that period is a much more difficult metric to assess especially when one has been actively trading. But as someone said above, it is what one believes in and takes pleasure from that is more important than what is reality as long as that belief doesn't land up hurting in the future.
Around 8% or more annualized over the last 10 years would, in my opinion, be a good management of one's portfolio through a market cycle, assuming the performance was measured correctly/honestly. I am yet to see a brokerage platform that computes these long term results correctly especially with inflows/outflows of money in the accounts.
@maurice, you do have a valid point regarding weighted averages but I feel even that is too academic given the number of ill-informed people, terrible 401k plans etc., that support so many bad funds. The metric relevant to us is whether the small subset of funds that groups of people such as on MFO who are above average in being informed select do relative to the indices. You also have to eliminate funds that do not attempt to beat induces but try to reduce volatility, drawdowns, etc. The broad averages are good for religious views.
The M* investor returns also suffer from the flaw of averages even if they are weighted. That number as computed has absolutely nothing to do with any average investor returns. It is the theoretical returns of an investor who buys and sells similar to the net fund flow in and out of that fund. Such an investor doesn't exist or even close to it. But it supports a religiously held view.
Comments
Through the years the sleeve method has worked well for me. Should one of the funds within the sleeve falter then there are the other funds that offer production to continue to propel the sleeve. In 2013, PASAX faltered however there were the other five funds that continued to propel the sleeve.
I developed my sleeve (team concept) while I was at summer boy scout camp years back where I earned a merit badge in canoeing. I observed if there were only one paddler in a canoe then canoes with two paddlers could propel themselves faster than the canoe with only one paddler. And, if there were three paddlers working as a team, then they could move even faster over the canoes with two paddlers. So it seems that the three paddler team was the charm and this has stuck with me through the years. This seems to have worked well for me with investing. So for me, I choose a tri pack format when possible ... and, at times I'll duce that. In addition, I used this strategy at the dog track where I'd bet three dogs to win, place or show. My winnings were much higher with this strategy over the single bet strategy.
I wish all … “Good Investing.”
Old Skeet
The rationale seems very much like the lazy portfolio creators whio kept claiming for years that their portfolios beat the S&P every year. Sure when you add components that take more risk than S&P 500. I don't mean disrespect and this is a serious question, are you sure you aren't fooling yourself that it is "working"?
You come across, to me, as a well schooled “Wall Street” type knowledgably person. While I am an average “Main Street” type person. My strategy when applied to my portfolio has out performed both Fund Yardsticks Indexes “Balanced” and “Stock & Bond” funds. At times I have bettered the Lipper Balanced Index. I usually trail it in up trends due to my usualy held large cash position and usually better it in down trending markets as cash acts as a dampener.
To offset the additional cost factor over an Index fund I only try to hold category leaders. Over the past five years through December 31, 2013 I had an average annual return of better than 16.5%. This was done with mostly what Morningstar would classify a conservative allocation portfolio with assets ranging in the 5% to 20% range for cash, 25% to 35% range for fixed income, 40% to 60% range for equity and 0% to 10% range for alternatives over the past five year time period. No doubt the asset allocation moved within these ranges during this time span and varied form time-to-time. Seems the Yardstick Balanced Index returned just short of 12% and the Stock & Bond Index returned just short of 11% over the like five year time period. I am showing that a 50%/50% portfolio compiled of both a stock and a bond index funds would have have offered about a 14% annualized return over the same period.
So, was it the strategy, asset selections, and/or fund selections that was responsible for the out size performance over the Yardsticks or some combination or all of the above, or even more things including the special investment strategies, offered by the Moose and Ron Rowland’s Leadership Strategy, that contributed? Or, pehaps it might even have been good risk management of assets on my part. Over the past five years I have diaded down my exposure to equities as they have advanced in price and dailed down my exposure to fixed income along with reducing bond duration plus increased my exposure to alternatives.
In any event, the 16.5% average five year return came from a real live portfolio. And, as a result I am a most happy camper.
Old_Skeet
I would attribute any over performance if it really exists to allocation skill or luck or both or to a bad benchmark.
But seriously, the more complicated you make it, the easier to fool yourself that it is working. I am not saying you are necessarily, but there is an aspect of free lunch with "sleeves" in there that seems self-fulfilling.
Last 5 years has been a great bull market.
Regards,
Ted
Moses Parts The Mutual Fund Sea: Charlton Heston:
Of course this was during the 90's so pretty much any style would work. In certain cases like the Japan dead cat bounces or the rise in gold, I would skim profits off those funds and direct that into BGNMX which was a consistent workhorse of a fund. In the case of gold when it was going up like crazy I did this a few times. That GNMA fund provided additional returns at a much safer risk.
I have always viewed investing as having a luck component. Right after the Sept. 11 attacks, I put a decent portion of my portfolio into gold. The rest was history. If my decision had failed I had only myself to blame and always learned from them. Old Skeet is happy with his results and that is what matters in the end.
There are familiar names among multi-sector funds such as Dan Fuss's Loomis Salyes bond, LSBRX. It holds about a third of Canadian and European bonds; the rest in corporate, high yield, and ~15% in stock.
But seriously, given 90% of articles in the media are BS, are you surprised?
Regards,
Ted
Ballast is ballast in an overall portfolio, eh?
Our house's greatest concern is when Fuss leaves and who will continue to manage PIMIX / PONDX at Pimco.
One can't complain about bond performance from either fund during 2013 or 2011 when there was a bit of stink in the equity area starting in late summer.
One won't fly the most high flag with either of these; but can not dismiss their longer term returns. The majority of folks should be pleased with such returns over their investing lifetimes. Luck or skill.
Regards,
Catch
On the same note, Pimco is undergoing many changes - many does not look good. We all need some exposure to bonds in order to keep the portfolio afloat. The question is how much risk you are willing to take and how much you want to pay for those erotic funds?
But buying such an active fund does entail taking manager/strategy risk. That is OK with me too. I don't see much difference between that and taking more beta exposure risk in an index as long as the returns are commensurate.
My earlier comment in this thread is for a suggestion that diversifying across multiple such funds in case one of them falters may increase the performance over the index. It only helps manage the manager/strategy risk and reduces volatility if any of the funds do go through bad patches and that is a desirable benefit on its own.
But there is a cost in performance unless each of them over performs its relevant index, in which case the diversification was unnecessary or it was measured against an incorrect index to represent the combination.
The more complex/varied/numerous the funds so combined, more difficult to determine if the fund collection actually helped or hurt and easier to fool yourself that they did relative to a simple index portfolio with similar beta exposure.
This is a problem with all kitchen sink portfolios.
Regards,
Ted
Well, Skeet, you should run a fund, if this is an accurate representation. By your M* characterization is implied no HY fund (FAGIX was up 70% in '09, e.g.) --- correct?
Now, the last five years have been awesome, true, even, as you note, for 60/40 and 50/50 funds, but if what you write is so, both the math and the M* adjective, some details would be welcome. You appear to have nearly matched and sometimes outdone even Romick, Intrepid, D&C, the Jameses, Fido, Weitz, and some others. Pray tell more.
Thanks for your comment and noting your observation.
You are right about the returns and it has not gone unnoticed by my brokerage firm as they are the ones that did the tracking and the reporting of the five year return number on my portfolio. This also caught their eye. I don’t know about the fund managers that you referenced … but, I do know I did better some of the major fund houses with respect to their conservative, moderate and world allocation funds. I compared my results against some major funds for the same five year period ending 12/31/2013. Their results were FKINX 15.27%, CAIBX 11.61%, TIBAX 15.10%, AMECX 14.27%, ISFAX 14.08%, LABFX 14.06%, CAPAX 13.38%; but, AZNAX nipped me out with a return of 17.87% along with DDIAX with a return of 16.55%. I was at 16.51%.
Being a former corporate credit manager helped me with some skill level concerning risk management along with my sleeve investment system and its mythology played a role in this. In addition, putting money in out of favor assets when I felt they were oversold and then trimming these positions back when they became more in favor and overbought also played a role in this. Plus this has been one of the best bull market runs of all time which was also a plus. The only year I stumbled was 2011 where I eked out a small positive return. The other four years were fair sailing for me.
As a boy scout I learned quickly how to paddle a canoe upstream by finding calm waters to advance and then how to navigate the fast current in moving down stream. In simple terms I applied this knowledge learned to investing and have carried it through life in other endeavors.
Now you know why I continue to say … I am a happy camper.
Thanks again for taking notice.
Old_Skeet
As to how much value was at risk during that period is a much more difficult metric to assess especially when one has been actively trading. But as someone said above, it is what one believes in and takes pleasure from that is more important than what is reality as long as that belief doesn't land up hurting in the future.
Around 8% or more annualized over the last 10 years would, in my opinion, be a good management of one's portfolio through a market cycle, assuming the performance was measured correctly/honestly. I am yet to see a brokerage platform that computes these long term results correctly especially with inflows/outflows of money in the accounts.
The M* investor returns also suffer from the flaw of averages even if they are weighted. That number as computed has absolutely nothing to do with any average investor returns. It is the theoretical returns of an investor who buys and sells similar to the net fund flow in and out of that fund. Such an investor doesn't exist or even close to it. But it supports a religiously held view.