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Unconstrained Bond Funds Are Constraining Investors
The fund that I bought several months ago and consider an "unconstrained" bond fund is EVBAX - Kathleen Gaffney's fund. It's done gangbusters since it opened.
The fund that I bought several months ago and consider an "unconstrained" bond fund is EVBAX - Kathleen Gaffney's fund. It's done gangbusters since it opened.
I wanted to get into Kathleen Gaffney's fund. But it's got the "Dreaded Load". A load of 4.75%
That kept me away. Also I prefer an expense ratio lower than .95% for a bond fund.
I haven't thought of EVBAX/EVBDX as "unconstrained". I think there are boundaries placed on what and how much they can invest in certain places by prospectus (fundamental), so I've thought of it like LSBRX--- an aggressive multi-sector with global reach, albeit with broad discretion within those boundaries. It has done well initially, esp. if you're in the no-load D shares so you've "realized" all of the return. For at least a few years, heaven help you if anything should happen to Kathleen Gaffney, ya know?
As for the article..... though most have had uninspiring returns (agreed), the article's claim rests on the 3 biggest ones--- PIMCO's, and two others run by criminal banking syndicates. It does not note several diamonds in the rough. e.g. my Scout Unconstrained has an average annualized return, thru Mar, of 11.8% or so. Not too shabby. The day has just dawned for these funds... Time will tell.
When you trade core bond funds for unconstrained (or strategic, or whatever) bond funds, you are trading one kind of risk for another. When you buy an unconstrained type of bond fund, the manager (or team of managers) are THE most important thing. If they cannot handle the strategies they employ, the fund is going to be weak. There are a lot of fund companies jumping on this bandwagon, and very few of them have management with much, if any, experience using some of the techniques to enhance returns and reduce volatility. Do your research on the MANAGERS, not the fund. But also understand the investment process the managers use. For us, our core fixed-income holdings are mostly unconstrained (strategic income) funds. But we spend a lot of time in due diligence before committing client dollars. The real test for all of these funds will come when the Fed makes the first small increase in interest rates. That may be a couple of years down the road, but watch out. Nonetheless, I would not want to have many dollars in core funds when rates do go up.
@BobC +1 Problem is, though, many of these unconstrained/strategic funds/managers/strategies weren't around during periods of substantial interest rate increases. Makes due diligence difficult
I haven't thought of EVBAX/EVBDX as "unconstrained". I think there are boundaries placed on what and how much they can invest in certain places by prospectus (fundamental), so I've thought of it like LSBRX--- an aggressive multi-sector with global reach, albeit with broad discretion within those boundaries. It has done well initially, esp. if you're in the no-load D shares so you've "realized" all of the return. For at least a few years, heaven help you if anything should happen to Kathleen Gaffney, ya know?
That can be said about many funds and their managers - Gundlach, Gross, Fuss, etc. I'm not going to worry about something that may or may not happen in the future. She's fairly young and worked alongside one of the best in the business for several years. I will be curious to see how she reacts when interest rates begin to increase on a sustained basis, though.
Osterweis Strategic Income,OSTIX, is a noteworthy multi-sector fund. M* mis-labelled it as a high yield fund. Another one to considered is Thornburg Strategic income and it holds foreign bonds as we'll. i
Talk about can't win for losin' or whatever the phrase is. A multisector bond fund (close to the best for quite some time) does just what it's supposed to do, and since summer 07 matches / marginally outperforms FSICX and DODIX while doing so noticeably more steadily, nice and even. Steady, steady. It ain't PONDX, okay. But Lipper still has it at 5 for preservation, while good ol' M* gives it ** owing to its recategorization six months ago. Evidently justified, but still.
Not knock against OSTIX, nor other multi-sector bond funds; but my largest concern with any such fund is the ability of the management team to have the proper expertise in a given bond type sector. The presumption being that a multi-sector bond fund team should be pretty darn good at determinations about the direction of bond sectors. Not an easy game to play, eh?
This is the luck part for any investor. I "gamble" upon which bond fund I feel has their act together. To a point they (the fund) are doing the same; but also get whipped around by policy changes of central bankers who are the pilots of the investment game.
The best one may hope for is to be tied closely to the rear of the central bank boat, so as to not be caught drifting too far off the course being set and changed by the pilot(s).
As to OSTIX and other multi-sector bond funds and internal management, one finds; needless to say, a variety of courses being laid by the managers.
Part of our personal household plan is to have a mix of these type of bond funds. Yes, such a plan has been poo-pooped over the years both here and at FundAlarm, but of course; we don't really care whether another has their own plan or doesn't like ours. Monitoring the behavior of several funds is not a big chore in our technological world today.
We get the mix we are comfortable with today with: PIMIX, FAGIX and LSBDX in particular; with a mix of other dedicated high yield funds, too. PIMIX has been more of a mortgage area fund over the recent years, but has changed style a bit in the last 6 months. FAGIX is a dedicated HY fund, but has always held a mix of "other" accounting for 10-20% of the total. LSBDX remains an everything bond fund with 10% more or less of equity thrown in for good measure.
Multi-sector, flexible, unconstrained bond funds or whatever name one may discover for such funds should flex and evolve as necessary to survive and prosper in our, perverted monetary policy investment world of today.
The evolving of OSTIX into a high yield bond fund indicates the range of choices managers of such funds may have by prospectus. Holders of these funds may only "hope" that management has a full understanding of a particular bond sector to provide positive results. NOTE: We do not hold OSTIX.
Now, if one is damned good at presuming the directions of pricing of any bond sectors; pile into a narrow focused fund, and make some decent money. At the end of the day, it really doesn't matter from where the profits arrive, eh? Both bond and equity investors all around the globe are making money every business day. Find your comfort zone and invest accordingly.
Comments
After all, we're only in them for the money (return).
Multi-sector bond fund returns YTD
But it's got the "Dreaded Load". A load of 4.75%
That kept me away. Also I prefer an expense ratio lower than .95% for a bond fund.
Load waived and no transaction fee at Fidelity
Regards,
Catch
Pretty risky in many places; excepting CD and related, and then the risk is loss of value to inflation.
The day has just dawned for these funds... Time will tell.
So far as ER's go, isn't RSIVX >1%?
Derf
Seems unusual for a fund called "Eaton Vance Bond"
According to the fund's prospectus, it may invest up to 20% in equities, including REITs.
I do believe OSTIX is high yield at this time.
composition
Not knock against OSTIX, nor other multi-sector bond funds; but my largest concern with any such fund is the ability of the management team to have the proper expertise in a given bond type sector. The presumption being that a multi-sector bond fund team should be pretty darn good at determinations about the direction of bond sectors.
Not an easy game to play, eh?
This is the luck part for any investor. I "gamble" upon which bond fund I feel has their act together. To a point they (the fund) are doing the same; but also get whipped around by policy changes of central bankers who are the pilots of the investment game.
The best one may hope for is to be tied closely to the rear of the central bank boat, so as to not be caught drifting too far off the course being set and changed by the pilot(s).
As to OSTIX and other multi-sector bond funds and internal management, one finds; needless to say, a variety of courses being laid by the managers.
Part of our personal household plan is to have a mix of these type of bond funds. Yes, such a plan has been poo-pooped over the years both here and at FundAlarm, but of course; we don't really care whether another has their own plan or doesn't like ours. Monitoring the behavior of several funds is not a big chore in our technological world today.
We get the mix we are comfortable with today with: PIMIX, FAGIX and LSBDX in particular; with a mix of other dedicated high yield funds, too.
PIMIX has been more of a mortgage area fund over the recent years, but has changed style a bit in the last 6 months. FAGIX is a dedicated HY fund, but has always held a mix of "other" accounting for 10-20% of the total. LSBDX remains an everything bond fund with 10% more or less of equity thrown in for good measure.
Multi-sector, flexible, unconstrained bond funds or whatever name one may discover for such funds should flex and evolve as necessary to survive and prosper in our, perverted monetary policy investment world of today.
The evolving of OSTIX into a high yield bond fund indicates the range of choices managers of such funds may have by prospectus. Holders of these funds may only "hope" that management has a full understanding of a particular bond sector to provide positive results. NOTE: We do not hold OSTIX.
Now, if one is damned good at presuming the directions of pricing of any bond sectors; pile into a narrow focused fund, and make some decent money. At the end of the day, it really doesn't matter from where the profits arrive, eh? Both bond and equity investors all around the globe are making money every business day. Find your comfort zone and invest accordingly.
My 2 cents worth.
Catch