Dan Fuss - Bonds most overbought he's ever seen

Hiyield007

http://blogs.barrons.com/incomeinvesting/2013/01/31/loomis-sayles-fuss-bonds-most-overbought-hes-ever-seen/?mod=BOL_hpp_highlight_bottom

The first month of 2013 isn't shaping up very well for those with a diversified bond portfolio. Long governments are down over 4%. Even world bonds are negative. Emerging markets are barely above water. Junk has been the best performer but appears to have topped this week. Of course, PDI keeps chugging along with new highs today.
It's sister fund PONDX has stalled as has ANGIX. But who knows, maybe all these bond pundits are dead wrong.

FWIW, down to 85% in PONDX with the remainder primarily in SMVLX with a smallish position in MSCFX and adding on declines to a stock, SNTS (best to fade me when it comes to individual stocks) SMVLX fits my personality being that it's a concentrated fund. I rolled out of a PIMCO fund, PCKDX, because last Friday's action was a bit scary in funds that use derivatives as well as some of the risk parity funds. I wonder how these funds will do if bonds continue to decline and stocks rise.

Hiyield007

Yikes, double post. See Ted's post below. How do I delete?

Old_Joe

Reply to @Hiyield007: Don't think that you can delete entire post. If you want to effectively delete though, you can use "Edit", and change the title to something like "Disregard- Deleted", and then just put the word "Deleted" in the text section also. I think that that should do it.

[Deleted User]

The user and all related content has been deleted.

Old_Joe

Yes, that's a good idea... or if you do choose to delete, be sure to move your commentary to Ted's thread.

hank

Reply to @Hiyield007: Anything really good, you gotta check to see if Ted got it. (Don't think he ever sleeps:-) Agree with the others, you should let it stand for your added commentary - which is very good.

fundalarm

soooooo, mr junkster. you got sold on all the 'bond bubble' talk and are reducing your sure winner to get into small caps? please do continue to update us on the progress! (i still recall your moving to a tech fund in -- was it 2010? -- and promptly jumping off because of volatility). jr

bee

If there is one guy who I listen to when it comes to Treasuries it's Robert Kessler. Following this guys commentary is a great way to pay for your Bond education.

His view 10 years ago:
money.cnn.com/magazines/fortune/fortune_archive/2003/09/15/349154/

2012 View:
bondsonline.com/News_Releases/news05021201.php

Recent interview with Robert Kessler:
advisoranalyst.com/glablog/tag/robert-kessler/

Finally, a quote Ted should carefully read the next time he blasts a bond investor (Catch22):

"Treasuries have long been considered a very uninteresting investment due to their relative low yields which some people think of as their return. The reality is that bond returns come from price appreciation as well and as interest rates have been falling for most of the past 30 years, Treasuries have been one of the best performing assets over almost any recent historical time period you observe."

Hiyield007

Reply to @fundalarm: Well, it's hardly like 85% in PONDX is much of a reduction. It's more like PONDX's behavior has been out of its most recent norm. So I scale back a tad. SMVLX is not a small cap fund and hopefully that is where I can ramp up if necessary. Albeit MSCFX is a small cap. There have been more than a few times over the past four years where I have ventured away from 100% junk bonds (or in this case PONDX) only to be slapped around by volatility and that is why I don't want to go overboard here. The fact remains some bond areas have been hit this month while others are barely above water. Bonds don't have to crash, they can just slowly bleed.

Edit: PONDX had a 1.88% gain for the month. Nothing to yawn at and one of the top 40 bond funds for the month. I still have the utmost faith in Ivascyn but will let price action dictate.

Investor

Reply to @Hiyield007: Next time, you can edit and recycle the post for something else if nobody has yet posted. Otherwise, edit topic and add (duplicate) or (ignore) etc.

Hiyield007

Reply to @bee: bee, maybe Ted was just being prescient and giving catch a heads up.

Below are January's returns from Morningstar.

Fixed-Income Funds
High Yield Bond 1.31
Bank Loan 1.06
Nontraditional Bond 0.74
Multisector Bond 0.66
Emerging Markets Bond 0.21
Ultrashort Bond 0.10
Short-Term Bond 0.05
Short Government -0.16
Intermediate-Term Bond -0.35
World Bond -0.38
Intermediate Government -0.51
Inflation-Protected Bond -0.52
Long-Term Bond -0.61
Long Government -3.71

bee

Reply to @Hiyield007:
Maybe you are right this time, but I am just pointing out that bonds over the last 30 years have been one path up the mountain...with less volatility than equities.

Just picking on Ted because he has made himself an easy target...criticism is the most awkward form of flattery...I'm sure he will have ample opportunity to return the favor.

Hiyield007

Reply to @bee: Bee, initially, I was being a bit facetious in all my " run for the bondland exits" posts and trying to sarcastically mimic all the talking heads who were so in unison about how bonds were about to crash. Normally when the talking heads are all in agreement you can bet the opposite is about to occur. But then when I saw the slow bleed that began in some bond categories right from the get-go at the beginning of the month I became a bit concerned they might actually have it right for once. Tomorrow's employment number could give further fuel to the January stock bulls and bond bears. Then again, it could do just the opposite, so we shall see.

Old_Joe

Same here re the "slow bleed". I've been cutting back on the losing positions as they have been declining. No serious losses... just part of the game. Still have a fair exposure to high yield junk, but watching that like a hawk...

Ted

Reply to @bee: I am also a bond investor ! My capital preservation portfolio contains, individual government and corporate bonds (Investment Grade & Junk), individual preferred stocks and PFF. I also own a number of blue-chip dividend paying stocks two bond funds (PONCX & PBDCX). However, I do not have 98% of my assets tied up in bonds. Every investor should have a good share of equities in their portfolio at all times
Regards,
Ted

hank

Reply to @Ted: Are you still holding VCLT? Looks like it's been trending down since you purchased it in mid-November.

http://www.mutualfundobserver.com/discuss/index.php?p=/discussion/4510/investors-move-out-of-junk-to-high-grade-debt

BobC

I especially liked Carl Kaufman (OSTIX) on high-yield bonds. "High-yield bonds are the best looking horse in the glue factory." I think that says it all. With few exceptions, we are using bond funds that have very flexible mandates. With Vanguard Long-Term Treasury already down 5% in the last few months, buyers beware.

MikeM

Reply to @BobC: Hi Bob. Bond funds with flexible mandates sounds like the way to go and you have been saying that for a while now. I think you have also said you like bonds from outside the U.S. Question, have you increased the percentage of international/EM bonds in comparison to U.S. in your clients portfolio? Have bond funds as a percentage been decreased in portfolios or are you keeping the overall bond percentage the same, just tweaking the percentage funds?

I

Mindy

Reply to @Hiyield007:

How Do I Delete? Sonnet 43 - by Elizabeth Barrett Browning (mfo ed.) 

How do I delete thee? Let me count the ways.
I delete thee to the level of every day's
Most quiet need, by sun and candle-light.

I delete thee freely, as men strive for right.
I delete thee purely, as they turn from praise.

I delete thee with the passion put to use
In my old griefs, and with my childhood's faith.

And, if God choose ...
After death - I shall delete thee even better.

Mindy

oops sorry (:.

BobC

Reply to @MikeM: Hi MikeM. 4-5 years ago we decided to use a 50/50 mix of domestic bonds to international bonds. This obviously was a lucky guess, since those non-U.S. bonds have been real winners. The only problem was that domestic bond managers have been increasing their non-U.S. holdings, too, so we started seeing a real over-allocation to those bonds last year.

We have used alternatives over the last few years to reduce our equity risk. But we are now moving more dollars to equities and capturing bond gains, moving those dollars to alternatives. Personally, I think EM bonds have a lot of attraction. We have used TGBAX and GSDIX for our foreign bond allocation, but are moving more dollars to GSDIX for committed non-dollar exposure. TGBAX has always owned non-dollar bonds, but we want to have some dedicated exposure there.

So our overall bond allocation remains about 50/50 domestic and foreign, but still tilted a bit toward foreign bonds. We are ramping up our purchase of LASYX, which is essentially a long-short bond fund with very strong management. It's a newer fund, but the Loomis folks running it (Eagan, Kearns, Vandam) seem to have found a good strategy. It could be a good buffer as interest rates move higher.

So, ikn answer to your questions: 1) Overall domestic/foreign allocation is around the same at 50/50. 2) Starting to move dollars from bond funds to alternatives and to be sure our domestic bond exposure is in flexible-mandate funds. Using alternatives to hedge our fixed-income allocation, instead of hedging our equities.

Ted

Reply to @hank: Sorry for the delay, I dumped VCLT in August.
Regards,
Ted