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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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David Sherman's updates (and offer) on RiverPark Short Term High Yield

RiverPark just posted David's update, which should download if you click on it, and we had a few minutes to chat at the end of his lunch hour.
  1. The fund is performing well. It's down 2.1% YTD. That compares to MINT at -4, Zeo at -10 and ultrashort bonds as a group at -3.8%.
  2. By its nature, Short Term High Yield is generating investable income for him every day. The "ultra short" part means that he doesn't have to sell portfolio holdings so much as letting them mature and be redeemed, which happens regularly. About 40% of the portfolio, $270 million, will rollover into cash in the next 30 days.
  3. He's buying. The nature of panics is that they favor folks with dry powder and a willingness to buy. He's picking up things that, under the right circumstances, are offering annualized returns of 7-50%.
  4. He's willing to talk with you. Both he and Morty Schaja have offered to join us on a conference call if that's something that might be useful and generate enough interest among board members / readers to justify the effort.
Let me know what you think. In particular, let me know what topics you'd want to hear about if a call occurs. As a caveat, there are likely to be some topics where David & Co. would be unable to comment for legal reasons.

By way of disclosure: I own shares of RPHYX and last week bought additional shares - as I did with most of my holdings - but we have no other financial ties with Cohanzick or RiverPark.

For what that's worth,

David

Comments

  • Beautiful! Yes, I noticed too that RPHIX has not suffered losses like ZEOIX, DODIX, PIMIX. Yes, closer to MINT. A rare bright spot in the fixed income market. (Although RSIIX has not fared particularly well.) Be very curious about his views on liquidity for the "money good" holdings. Thanks for sharing and good to hear. c
  • Good to know; I almost called today to check my balance. Yes, there are a lot of good opportunities out there -- issue is whether or not funds can stay liquid longer than people can keep their stuff together.

    There are some legit disaster scenarios out there. A 9 month outbreak and / or quarantine will crush the economy.
  • I want some answers on RSIVX not RPHYX.
  • Hi @VintageFreak

    A quick look at the portfolio of the fund ( RSIVX ) you mentioned indicate why the recent price drops.

    First, a quick look at S&P's bond rating guide:
    "AAA" and "AA" (high credit quality) and "A" and "BBB" (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations ("BB," "B," "CCC," etc.) are considered low credit quality, and are commonly referred to as "junk bonds".

    RSIVX , per M* has an overall rating of "B" rating. Also, as a compare; an excellent high yield/junk bond fund ARTFX has a SEC yield of 6.25%, while RSIVX has a SEC yield of 5.53%. For me, this also indicates that RSIVX is closer to "junk" status for its holdings.

    Corporate bonds in particular, have not fared well during this melt period.

    There remains a lot of stress going forward in the ability of companies to be able to service their debt properly.

    RSIVX bond grade holdings:

    Grade / Fund %

    AAA/ 0.00
    AA/ 0.00
    A/ 0.64%
    BBB/ 23.72%
    BB/ 30.51%
    B/ 38.18%
    Below B/ 6.95%
    Not Rated/ 0.00

    Lastly, regardless of the "name type" (strategic, total, etc.) of a fund, one needs to know what is under the hood, yes?

    My 2 cents worth.
    Take care,
    Catch
  • So far, the traditional, vanilla bond funds (MWTRX, VCORX) have mostly held up a hell of a lot better than the "nontraditional" ones that were supposed to do fancy stuff to keep investors safe.
  • Hmmmm ... top 10% of its peer group for the trailing 1 week, 1 month, 3 month and YTD periods.

    If you check the factsheet, you'll notice that two of the top ten issuers are cruise companies (Royal Caribbean, Silverseas) and at least one is energy (Pacific G&E). Other than that, lots of software and internet.
  • @David_Snowball, yup, at the top of its peer group, but the peer group has been a disaster compared to plain vanilla intermediate bond funds.
  • edited March 24
    expatsp said:

    So far, the traditional, vanilla bond funds (MWTRX, VCORX) have mostly held up a hell of a lot better than the "nontraditional" ones that were supposed to do fancy stuff to keep investors safe.

    Of course, it did at a time of a major meltdown when simple bonds have higher liquidity.
    But, it depends on your style and needs, do you want to own only simple indexes/funds or you think there is any value in flexible managed funds. There is a place for both. I prefer managed funds since 2000 because I was able to lower my portfolio volatility and reach my goals. What simple bond fund had the risk/reward of PIMIX 2010-2018?

    Soon will be the time that managed funds may shine again
  • would be very interested in conference call or webinar
  • @catch22 Actually I would challenge the notion. It is not secret I am bond challenged. I've also mentioned 007 doesn't know jack s*** - stirred tastes better than shaken.

    When I buy bond funds I HAVE to trust the manager. This the reason I seldom buy bond funds outright. Imagine buying IOFIX "knowing what's under the hood". I'm just glad I didn't buy it.

    Back to RPHYX and RSIVX. I expected these to be low risk funds. Now "low risk" is in the eye of the beholder. However when I look at FPNIX, at least I have some confidence. With RPHYX...mea. With RSIVX I'm not happy.

    I bought RPHYX and FPNIX risking funds I would otherwise have put in money market.
    I bought RSIVX because I thought PTTRX is risky. WTF? Please tell me ONE person who thought PTTRX is a better risk/reward bets in the "sky is falling on bonds" world where every Tom, Dick and Harry is saying buy funds with short durations. They've been wrong on this for at least 10 years.

    But tell you what. Let me but PTTRX. It will promptly tank 20%.
  • @VintageFreak. It's not just PTTRX. Pretty every well-run, vanilla intermediate-term bond fund has held up better in this crash than RPHYX, while also providing better medium and long-term returns.

    The promise of RPHYX was to sacrifice some potential upside in return for minimal downside. It hasn't delivered on the latter compared to old-fashioned, easy-to-understand core bond funds, or even bond index funds like VBMFX.

    So what, please, is the point of this fund, if it can't even provide better downside protection than an bond index fund?

    Btw, I sold my holdings in RPHYX over a year ago, so I've no dog in this fight. I'm just curious.
  • Just as a reminder, RPHYX is the Short Term High Yield Fund and RSIVX is Strategic Income. The former is down 2.5%, the latter down 14.5% as of 3/23/20.
  • I'm expecting massive sell-offs. Since I'm using RPHYX as a near-cash substitute, I want to know if he gets hit with redemption fever, how much actual cash is on hand versus "in 30 days" cash.

    Like the suggestion that he's picking up 5% yields on the cheap, but maybe that means that someone like him is also having to get liquid.
  • STOP with the "cash substitute" title. It's a short duration bond fund that has risk. It's not cash!
  • It was only seven years since I made this post about STADX specifically and "enhanced cash" funds generally. How soon they forget:-)
    https://mutualfundobserver.com/discuss/discussion/comment/21712/#Comment_21712

    Until the GFC when most of these funds vanished in the US, "enhanced cash" was used to group three types of funds that fall between MMFs and short term bond funds. While the term has fallen into disuse, it still seems to be an apt moniker.

    iMoneyNet continues to use the term. Here's the way they define the fund categories (from a 2016 iMoneyNet presentation). All colors, bolding, etc. in original. The categories are arranged from least risk to greatest.

    Enhanced Cash Sector Categories Defined

    Cash Plus Funds- Government Portfolios and Prime Portfolios
    • Seeks to maintain a stable $1 NAV but uses mark-to-market, not amortized-cost valuations
    • WAM usually range up to 180 days (MMFs are up to 60 days)
    • Priorities:1) Stability of Principal, 2) Yield, and 3) Liquidity
    Enhanced Cash Funds- Government Portfolios, Prime Portfolios,
    and Prime+Sub-Investment Grade Portfolios
    • Floating NAV, Effective port. duration generally ranges up to one year
    • Priorities: 1) Total Return, 2) Stability of Principal, and 3) Liquidity
    Ultrashort Bond Funds- Government Portoflios, Prime Portfolios,
    and Prime + Sub-Investment Grade Portfolios
    • Floating NAV, Effective portfolio duration generally from 1 to 3 years
    • Priorities: 1) Total Return, 2) Stability of Principal, and 3) Liquidity
  • Hi @msf Thank you.
  • edited March 24
    @MikeM and @expatsp you are right. However, RPHYX *was* touted as a cash substitute. For RSIVX I can take 100% of the blame.

    Looking on the positive side, this market has taught me 2 things.
    Don't effing buy what you don't understand. I still wanted to own some bonds and paid the price.
    Diversifying with more long-short funds is not the same as diversifying with equity funds.
    I own NCLIX and I own RMBFX at Schwab. One doing the trick, one not. i expect to reduce one fund, no guesses for which.
  • Hi @David_Snowball, yes, my comment was about RPHYX, and I was actually thinking of you when I wrote that comment, since I know you've invested heavily in it.

    In this crash, it has underperformed both vanilla bond funds like MWTRX and Vanguard's bond index fund, VBMFX, which is positive for the year. It has also underperformed over the medium and long terms.

    It was supposed to offer minimal downside. As it turns out, in this stress situation, it has offered more downside than a total bond market index fund, while also underperforming the index by over 100 bps/year over the last 5 years.

    I have enormous respect for you, so I am curious if you are rethinking your investment in this fund.
  • expatsp said:


    In this crash, it [RPHYX] has underperformed both vanilla bond funds like MWTRX and Vanguard's bond index fund, VBMFX ...

    It was supposed to offer minimal downside. As it turns out, in this stress situation, it has offered more downside than a total bond market index fund ...

    RPHYX is supposed to offer a more steady ride, not outperform over mid- to long-term. In that, it has succeeded.

    Here's a graph plotting the 3 month performance of these three funds. The "crash", or "downside" begins for the vanilla bond fund VBMFX and the core plus bond fund MWTRX (and the average intermediate core plus bond fund) begin around March 8th.

    Here's the graph comparing their performance from March 8th on.
    Average core plus: -8.2%
    MWTRX: -5.3%
    VBMFX: -4.4%
    US bond index: -4.1%
    RPHYX: -2.3%

    Not quite the steady eddy one might have hoped for, but half as much loss on the downside. As others have pointed out, there's a difference between cash and any fund not pegged to a $1.00 NAV. RPHYX is not a checking account. It is best used for the cash portion of one's asset allocation, not for daily expenses.

  • @msf. Good stuff.
  • @msf, thank you for the reminder. I have not forgot.
  • edited March 25
    @msf You said: "It is best used for the cash portion of one's asset allocation, not for daily expenses"

    First, I'm responsible for my own decisions and I'm not blaming anyone else. However, when we put it the way you put it, what should one conclude when we say "cash portion"?

    I agree it is unrealistic to expect RPHYX to "not break the buck" in a manner of speaking. So at this time I have the following questions
    1) Is RPHYX supposed to be more risky than a non-FDIC insured MM fund like Vanguard Prime Money Market?
    2) If answer to 1 is "Yes", then what is a reasonable amount of time I should expect to wait for it to perform better than Vanguard Prime Money Market - this can be an opinion.
    3) If answer to 1 is "No", then what is/are the reason(s) to invest in RPHYX.

    I have to ask these questions because while I didn't expect NAV of RPHYX to stay constant, I expect over 6-month time frame I don't lose my principal. To me this is what I - and IMHO any reasonable person - can tolerate for his "cash portion" and I'm happy to wait that time. If anyone disagrees with that I'm open to someone re-defining my notion of "cash portion".

    If one's "cash portion" is say 30% of the portfolio, like some "absolute value" mutual funds, I don't think they would tolerate RPHYX behavior , but I welcome any evidence to rebut this as well.
  • @msf Great stuff, indeed, thanks. And I suppose, if it finds some good buying opportunities now, it may do quite a bit better than money market funds in this zero interest rate world.

    Still, for me personally, if it can't outperform an index fund even over a 3 month period (as well as longer term), even if it did over the 3 weeks starting March 8, it's not worth it. If you might need your money next day, keep it in a money market. If you can wait more than 3 months, place it somewhere that offers a higher return.
  • Different people have different expectations and risk can mean different things to them.

    There's a difference between expectations and certainties. Stocks had a dismal decade in the 2000s. "Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress."
    https://www.wsj.com/articles/SB10001424052748704786204574607993448916718

    Stuff happens. It doesn't mean that rather than investing in stocks one should stuff a mattress. It means that sometimes one's expectations are not met; that's the nature of risk.

    Personally, if a fund like RPHYX underperformed VMMXX over a period of several years, it wouldn't bother me, so long as the margin of underperformance was within my tolerance range. I'm willing to accept the possibility of underperformance for extended periods, given the expectation that over time I'll outperform. Meanwhile, I can live with the small losses. But each person is different.

    With that in mind:

    1) Yes, RPHYX is supposed to be more risky than VMMXX. Especially now that the government has once again put its thumb on the scale to reduce the risk to VMMXX.

    2) As I noted in my post seven years ago, Strong had recommended a time frame of 1-2 years for its Advantage fund. I felt then and continue to feel that this is a reasonable recommendation. Over this period of time one expects to do better than a MMF, but that is different from saying it will always happen.

    3) As I tried to show above, taking on any risk means that sometimes things don't work out. That's true whether it's investing in a MMF that could break a buck or in stocks for a decade. One takes on the risk because the anticipated, the hoped for reward is sufficiently high to compensate for the occasions when outcomes are worse than anticipated.

    Each individual weighs risks and rewards differently. It's personal and there's no single right decision. YMMV.
  • Hi, expatsp!

    I remain comfortable with RPHYX. It's doing what I anticipated. The manager continues finding opportunities, some reportedly remarkable.

    Mr. Sherman has never compared his fund to an insured savings account. He's also said that it comes with risks but that he thought the risks were definable and manageable. He's allowed that the fund might be underway for six-nine months but was comfortable that investors would be made whole in something like that time. (Might it be nine months this time? Maybe. Don't know.)

    That roughly aligns with the fund's history: the historic recovery period for RPHYX has been seven months, MINT has been six, ZEOIX has been five. ZEOIX tends to fall harder and rebound faster.

    - - -

    I would be very thoughtful about what I compared my investments to. When people celebrate the success of "plain vanilla bond indexes," what they might actually be seeing is the performance of the Treasury component of indexes. What has succeeded over the past month have been the panic-purchase investments. The only Vanguard bond indexes above zero over the past month are Treasuries (or GNMA which is government-backed).

    Vanguard Short-Term Treasury (VFISX) yields 0.8%, costs 0.2% and has risen 1.47% in four weeks. That's equivalent to 10 months of its normal (5 year) annual returns. Currently the yield on one-year Treasuries is 0.25%; deduct the 0.2% and you're yielding 0.05% a year.

    Intermediate and Long-Term Treasuries have both returned more in four weeks than they normally would in an entire year.

    If you look at the Vanguard bond index returns, the longer the term on Treasuries, the higher the four-week return. If you look at the Vanguard corporate bond indexes, all are substantially negative and the longer the term, the greater the loss.

    - - -

    I entirely understand folks' concern. I'm with ya 100% - maybe 150%; some days, 162.4%. We all want to look at see green somewhere. I would have felt all warm and fuzzy if RPHYX, at least, was above water. That was my feeling in 2013 when RPHYX was up 3.4% while the Total Bond Market was down 2.3% and Long-Term Treasuries, today's heroes, were down 13%. As is, I'm merely calm and patient.

    For what that's worth,

    David

  • @msf and @David_Snowball, thanks to both of you for your wise and thoughtful comments!
  • edited March 25
    All I want now is people stop calling RPHYX as a proxy for "cash". And then "interpret" it. It's like any other fund you invest in which holds bonds.

    Serves me right for trying to grow a brain and invest in bond funds. I never did it pre-financial crisis. Now I know I should never have. Going forward I never will. Really have to rethink my FPNIX investment as well.

    I think someone has said investing in bonds is harder than investing in stocks. No kidding! Perhaps it's also because stocks can be manipulated easily by news or otherwise than bonds. Or maybe I'm wrong there as well. In any case, no more 007s in my life. I'll stick to balanced funds at best. At least I know my tax loss candidates for 2020 since hindsight is now also 20-20. Hah!
  • edited March 25
    Hi David, You noted:
    Long-Term Treasuries have both returned more in four weeks than they normally would in an entire year.

    Chart, SP500, TLT, EDV, ZROZ starting Nov. 4, 2009 (limited by fund inception date) through March 24, 2020.

    TLT, EDV, ZROZ returns chart , Jan. 2 -March 9, 2020. March 9 is the initial date when Treasury issues began to be "non-normal" in pricing relative to the whack down in the equity markets.

    QQQ versus EDV crossover points. One may drag and slide the 3,090 day line at the bottom area of the chart, from the left (oldest date) to the right towards the current date to find many other crossover points. EDV and QQQ generally perform inverse to one another.

    Ok, away to listen to Bolero and then meditate.

    Take care,
    Catch
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