J P Morgan says ... Boost Your Risk Positions and Unwind Hedges

Old_Skeet

That's right ... J P Morgan says Boost Your Risk Positions and Unwind Hedges. You can read more about this in the below linked article.

Among the JPMorgan team’s new key trades:

Shift away from gold to industrial metals
Favor spread widening in European high yield bonds relative to investment grade, thanks to weaker growth in Europe
Buy a basket of U.S. stocks sensitive to China and trade
Lift credit to neutral from underweight

https://www.bloomberg.com/news/articles/2019-02-07/jpmorgan-says-boost-your-risk-postions-and-unwind-those-hedges

Makes some sense ... to me ... but, Old_Skeet plans to continue to march with his 20/40/40 asset allocation. I'll let my hybrid fund managers make these shifts within their funds if they feel repositioning is warranted. After all, better than forty percent of my portfolio is invested in hybrid funds. Thus far, from my perspective, by holding a good slug of hybrid funds has made my portfolio more adaptive to changing market conditions through their use while, at the same time, spreading fund manager and strategy risk.

MikeM

...by holding a good slug of hybrid funds has made my portfolio more adaptive to changing market conditions through their use while, at the same time, spreading fund manager and strategy risk.

Sounds nice but in fact aren't they two contrary ideas. 1- Adaptive, able to respond to a changing environment 2- spreading fund manager risk and strategy, a collection of different ideas, some being right and some being wrong.

How does that work?

Old_Skeet

Hi @MikeM: Thank your for your question.

First, let's define adaptive. Per definition adaptive is having the ability to change to suit different conditions.

Second, let's define hybrid fund. Hybrid funds offer investors a diversified portfolio. The term hybrid indicates that the fund strategy includes investment in multiple asset classes. In general it can also mean that the fund uses an alternative mixed management approach. The investment manager(s) may actively mange the individual holdings within each asset category chosen to respond to changing market conditions and potential capital appreciation opportunities using their varying strategies.

For me, being a retired credit manager, there are safety in numbers as most companies would not want to be captive to a single receivable item. With this, I use a good number of hybrid funds to cover a broad market spectrum through varying fund manager styles and strategies.

For me, this makes my portfolio more adaptive to ever changing market conditions because I feel the investment landscape can be better covered by using a number of funds over just a single or a few funds. Others, may feel different. Also, should a fund manager falter with their market call then I have a good number of other fund managers that can offer support to the portfolio because their calls were correctly made resulting in capital gain.

MikeM

Thanks old skeet for the explanation, but it didn't clarify the dilemma between one fund managers strategy being adaptive and a collection of different strategies likely zeroing each other's adaptive approaches out.

I guess from an outsiders perspective, mine, it looks like a feel good approach which I guess in itself is important, but from a practical sense you created an "alternative" index fund. To each there own.

hank

It would depend on the nature of the hybrid fund whether the portfolio is “more adaptive to market conditions.” If the hybrid is simply a compilation of the various fund types already owned, than it’s likely to behave in concert with what you already own anyway. But if by “hybrid” we mean that the manager has broad latitude to raise cash for defensive purposes, short various stocks / market sectors or buy unconventional assets like gold, that could make a portfolio more responsive to market conditions (or so one would hope).

I’m not aware of a standardized definition of hybrid fund in mutual fund land. Such funds exist, of course, but what I might call a “hybrid” somebody else might call an allocation fund, balanced fund, or market neutral fund.

In one sense I agree with Ol’ Skeet in that the more managers you have running around in circles for you the more you are spreading risk around. You’re not necessarily reducing overall risk, but you are spreading it around. I suspect, however, that that approach does also reduce risk - along with potential return.

One personal example (which may / may not be applicable) - I long considered PRPFX part of my hybrid sleeve. A case can certainly be made for calling it a hybrid. But on rejiggering last summer I decided, for strategic reasons, to move it to my balanced sleeve. If one studies the fund’s assorted holdings it’s hard not to consider it quite balanced - even more so than a typical 60/40 fund.

Old_Skeet

@MikeM: Following your most recent comment seeking a comparison of funds held. Since, I own a good number of hybrid type funds their number is to great to compare one to the other or even discuss in this forum. I leave their study to those that might wish to put forth the time and energy that a study and analysis requires should they wish information on any of these funds.

The best way I found to study the different strategies and styles of my hybrid funds is to analyze their fact sheets. I found an easy way to pull a fund's fact sheet is to enter the fund's ticker symbol followed by fact sheet in a Google search window.

My hybrid funds held by area and sleeve follow.

INCOME AREA

Income Sleeve: CTFAX

Hybrid Income Sleeve: APIUX, AZNAX, BAICX, DIFAX, FISCX, FKINX, ISFAX, JNBAX, PGBAX & PMAIX

GROWTH & INCOME AREA

Domestic Hybrid Sleeve: ABALX, AMECX, FBLAX, FRINX, HWIAX & LABFX

Global Hybrid Sleeve: CAIBX, TEQIX & TIBAX

GROWTH AREA

Specialty & Theme: PCLAX

With this, I leave it to those seeking information on any of these funds to do their on analysis and due diligence. Some of them have simple strategies while others are more complex.

Old_Skeet

@hank: You make an excellent point because the only thing necessary to be considered a hybrid fund is to hold two, or more. forms of assets (stocks, bonds, etc.). Below is a link that will explain hybrid funds in more detail.

https://www.investopedia.com/terms/h/hybridfund.asp

With this, hybrid funds come in many forms such as allocation funds, fund of funds, target date funds, balanced funds, convertible securities funds, commodity strategy funds, are some examples. I'm sure there are others.

MikeW

@old_skeet thanks for sharing your thought process on selection of hybrid funds. I always enjoy your posts. Your approach is different from mine but i always learn.