I'm afraid I just don't understand much about some of the main investments in these type of funds anymore, i.e., Non-Agency Residential MBS, Agency MBS CMO, Agency MBS Pass-Through. Aren't these all mortgage-backed security types that caused the Great Crash of 2008? The Real Estate market doesn't seemed to have hit bottom even with all the decreasing values so far.
My concern is WHEN the market either crashes again (or has large overall extended downturn), what would be the expected loss percentages in these two funds due to these type of investments? In the crash of 2008, most Intermediate bond funds either gained a little, or only lost a little... but I don't know what they were invested in at that time. So do you think they will give similar protection with these investments?
Comments
Can't "stay and play", right now, today.
A quick link here; and also search Google with "types of mortgage securities" as well as the same search at YouTube.
If there were to be another market melt, at least based upon a few mortgage security related funds; FMSFX and FGMNX held up well, relative to other market sectors.
http://www.investopedia.com/terms/m/mbs.asp#axzz1i24unyc7
Regards,
Catch
He varies the mix according to outlook; recently he's had the lowest % in riskier assets since the crash, according to his recent webcast. So you might expect him to go further into gov't mortgages if things start to unwind. The catch (not referring to Mark!) is that it could incur some capital losses for a while, with the yield offsetting those losses, and if you hold it in a taxable account, you could end up paying tax on more $ than you've made in total return.
He does say TR works better in a flat- to up-market for risk assets, while his core fund (DBLFX etc.) will likely do better in a risk-off situation.
P.S. Morningstar does a nice job in x-ray for stock funds, but is dismally defective in bond section. Do you happen to know of a site that breaks down and evaluates bond fund investments well?
As to safety; sadly, I suspect all of us are at the fate of perceived quality and/or value. I will guess that those playing with the fancy stuff; as in derivatives and related are the only ones who really know at a given moment whether there is a real market for the product(s).
To paraphrase, Louise Yamada; the selling continues, until the buyers step in. The reverse also applies; be it any bond or equity type.
I don't know that M* or others would be able to fully evaluate the quality of some bond types; so, I don't think this would be a totally reliable guage with which to measure against future problems. Mr. Gross, Mr. Gundlach or Mr. Fuss of the bond world may only guage what their companies perceive as to the quality of an investment; based upon the demand and/or the "rules" (full faith and credit of a government, for example; or changes in laws).
An example, at this point in time; is the 10yr Italian bond at 7%, vs the U.S. 10yr bond hovering around 2%. The perception is the quality and ability of the underlying gov't to be able to honor their fiscal and monetary policies. Might the Italian bond be a good investment today?.........perhaps.
In the end, one has to offer some consideration as to how some bond types acted in the 2008/2009 market melt; as a guideline, but this does not mean the same action going forward. The most reliable guide to a funds holdings is the most current prospectus; and then one has to do their best to filter through the maze of what a rating agency (Moody's, etc.) may "think" of a given bond sector. I have little faith in the "raters".
A recent story about a decent sized MI city indicated that the current expenditures list amounts to 41% of the budget being related to servicing the pension and health benefits plans of the retiree base. Revenue for this city is going backwards, via lower property taxes and related. How in the heck will this city be able to function? I have not checked about muni bonds for this city; and/or whether any are issued, and if so, does Fitch have a valid rating for such bonds? I don't know that rating agencies have the staffing or ability to really determine the credit worthiness of many areas.
Lastly, while prior market actions may give clues to how any bond types may react; we investors are on our own, and do not play in the same world as the big kids. I do not write this to disuade any investor, in any market area; but I do believe this is the reality. Even the Fed Reserve and the Treasury had to bow to the machinations of the worthless pieces of paper upon which the CDO's and all of the other "funny money insurance" issues had been stacked to the ionosphere. Hopefully, a particular active managed bond fund has the ability and foresight to take the monies to the safest places during an "event".
Regards,
Catch
Gundlach does interesting conference calls. Unlike most calls, which seem to be neutered by compliance before they happen, his calls usually involve a brief discussion about the material in the slides, followed by the more interesting Q&A which takes up at least half of the call. He's obviously very opinionated and likely difficult to work with. But that self-assurance makes for some interesting and occasionally provocative views. His call regarding what would happen when QE 2 ended certainly trumped Gross. He's doing a 2012 outlook call on 1/5, probably worth a listen if you are able to access it. Also might want to look at RNDLX, his joint effort with Patrick Galley and the Rivernorth crew. My sense is that they'll be closing that fund fairly soon. It had an asset base of 470M as of 9/30/11 and I recall them addressing the closure question on a recent Rivernorth/Gundlach call. May be worth contacting Rivernorth to get that info and establishing a small position before it closes.
P.S. AndyJ's comments below nicely summarize how Gundlach is managing risk.
P.S. I didn't see your response in MY tab area, so almost missed it. This has happened with a few other responses I also almost missed, so hope MFO can find some way to show responses that haven't been answered in bold and larger font so I can find easier. I would hate to have anyone here think I didn't bother to respond after they took the time to provide input/help for me.
The last webcast put on by the DBL EM bond manager Luz Padilla was the single best explanation of all the permutations of EM debt investing I've ever run across - all in the context, of course, of the how & why of the fund's positioning.