SUBFX

expatsp

Last March, I put a chunk of change into SUBFX. It's my largest bond fund (my other two are RSIVX and MAINX.) It's been disappointing, pretty much even, about 3% below its category average and about 4% below its benchmark according to M* since I bought it.

That said, 15 months is a very short time on which to judge a fund, especially once whose past (before I bought it, alas) is so glorious. Its managers say they are not finding good values in the current market so are keeping a lot of cash and at least at times have been shorting Treasuries -- a bad bet, as it turns out.

Should I give up on this fund, swap into RSIVX, which has been slow and steady, just as promised, or into ARTFX, a new small fund with a great experienced manager? Or should I sit tight and be pleased that even though SUBFX's big bet -- that rates would rise -- has been wrong, it's still managed to stay pretty much even? It is bad that they got this bet wrong so far, but good that their risk controls have kept them from suffering too much for it.

A note: I don't keep a lot of cash in my portfolio, so I really want my bond funds to do well in a crash -- I don't want too much correlation with stocks.

Ted

@expatsp: How much exposure do you had to equity funds ? Do you own a healthcare fund ?
Regards,
Ted

expatsp

Hi Ted, I'm very aggressive right now: about 85% equities, 10% bonds, 5% cash. No health care funds. I expect I'm about 30 years from retirement and I did manage during the last market crash to hold tight and add when things looked bleak -- that's how my asset allocation ended up as it is, I moved from bonds and cash into stocks in '08-'09 and have so far only dialed that back only slightly. (Before I sound like a genius, I didn't have that much bonds and cash then either, so the shift was only about 10% of my portfolio, but boy, that 10% made all the difference.)

But given how aggressive my asset allocation is right now, it's really important that my bond funds not lose money in a downturn. I don't need the upside from that part of my portfolio. Which perhaps means I have just answered my question...

Ted

@expatsp:Hi Ted, I'm very aggressive right now: about 85% equities, 10% bonds, 5% cash. Welcome to get off the porch and hunt with the big dogs.
Regards,
Ted

jlev

@Ted I'm curious what counts as big dog hunting for you. I'm aware that you've expressed fondness for FBIOX or its brethren, and described PETDX as a big dog fund. what else goes into that category?

heezsafe

@Ted He who hunts with the same dogs, and the same strategy, day after day, year after year, who becomes oblivious to changes in terrain and flora (and, more significantly, to changes in fauna), may one day be on safari and find he is no longer the hunter, but the prey. Good luck, Big Dog--- you know what they used to feed to the lions in the zoos, dontcha?

@expats I too entered into SUBFX last yr, in January, with a smallish sum, and have been feeding it as it moves around. To steady your wavering resolve, it might be helpful to revisit why you invested in this fund in the first place (do you remember?). Has it been managed as promised? Did you invest in it because it had an opportunistic approach + a visceral dislike for losing principle, or did you invest in it as an aggressive momentum play, that didn't play (it didn't promise the latter)? At some point, I'll stop feeding it and wait for it to pop again before feeding it further; or, if the 10y T goes to 2-2.25%, it's a buying op with its Treasury short. Otherwise, remember it is a total return bond fund, with few constrains on what it can/cannot hold, and what it can/cannot do to achieve this objective. It is not an income fund, they never promised us a dvd stream. Also, remember what it did last yr relative to others; it did o.k. So where's the beef?
p.s. re. RSIVX: if the stock market corrects in a major way, you are not under the impression that Sherman's HY bonds will not decline as well, simply because they are of shorter duration, are you?

rjb112

@expatsp: "But given how aggressive my asset allocation is right now, it's really important that my bond funds not lose money in a downturn. I don't need the upside from that part of my portfolio"

You might want to take a look at FPA New Income FPNIX.
It has an expressed mandate to not lose money.
I don't believe it has any lost money in a single calendar year for 30 years.

STB65

@heezsafe: I must have missed something in the RSIVX info. I didn't think they were buying bonds above par. If so, there is obvious risk. OTOH, if they are buying at par or below, I assume they will be made whole at maturity, so one only needs to maintain stable positions to avoid losses.
@rjb112: FRNIX may underperform its benchmarks, but the slope is positive consistently in M*. Looks like you're correct about the fund not losing money. May not make too much, tho.
@expatsp: One might not lose money in bond funds by buying individual bonds or buying a defined maturity bond fund selling at par or less, but I don't see how one avoids risk otherwise. I have a rounding error amount in SUBFX, and agree that it has done so poorly that I haven't added to it, but the comments above describe the risks with the fund. I wouldn't remove all the invested money.

expatsp

Everyone, many thanks for the wise words.
@heezsafe, you have steadied my wavering resolve. Yes, perhaps the glorious past returns wowed me and I hoped to get those, soon, but my rational reasons for buying it were not a dividend stream (I don't need that) but the opportunistic approach plus the visceral dislike for losing money. I think your approach is wise and I intend to imitate it: since I'm low on cash, I won't add more for now, but if the 10y tsy indeed goes to 2.25%, I'll add to SUBFX.
@rjb112, I have looked at FPNIX, and it seems like a fund that successfully delivers what it promises, but my hope with SUBFX is that it will not lose money even when the market moves against it, but that when it gets it right, it will have a higher upside than FPNIX. So far, as heezsafe pointed out, it has at least fulfilled the first half of its promise.
@STB65 If I understand RSIVX right, the manager does expect to be made whole at maturity, but since he goes as far out as 5 years, he may be down in a given year. I think it's a great fund, I've got a toehold in it, but since I want to be able to tap my bond funds for fresh cash in case of a stock market dip, RSIVX is probably not as good for me as SUBFX or FPNIX.

Ted

@heezsafe: "Good luck, Big Dog--- you know what they used to feed to the lions in the zoos, dontcha?" Yes, its called heezsafe !
Regards,
Ted