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Defensive fund options

edited September 2 in Fund Discussions
Thanks to MFO for recent articles highlighting defensive funds that held up well and would serve as a defensive option for new monies. Funds mentioned that are of interest to me are DRSK, NUSI, TMSRX, RPAR and SWAN. I recently made a significant buy of SWAN, as I felt it was the best of the bunch. Some questions I have:
Which would be most tax efficient in a taxable account? Particularly TMSRX tax cost?
Which would be good partners with SWAN?

I am allocating $$$ from bond/cash for these purchases, as well as proceeds from equities as I aggressively rebalance.
TIA
Rick
«1

Comments

  • Do you means TMSRX?
  • edited September 2
    Yes, sorry! I edited it above. Thanks!
  • edited September 2
    I never understood how "multi-income" funds tend to always be FI funds. When I think of 'income' I always consider quality dividend stocks as part of that concept. *shrug* But I'm just weird sometimes.

    In that regard, NUSI looked interesting from an equity/options play when I discovered it the other day. It's the most interesting of Nationwide's new ETFs -- and you can also do similar things with QQQX or DIAX (Dow30) as well.

    My 'safe' equity fund continues to be PRBLX.
  • Hi Rforno, yes, very I’m intrigued by NUSI, also DRSK. I think the focus articles on TMSRX make it attractive too. Any thoughts on best fit for a taxable account(not looking for income)? I’m having trouble understanding how options distributions are characterized. So far, I’m happy with SWAN.
    Best of luck,
    Rick

  • Rickrmf - option income in CC-type funds typically are classified as ROC, which makes it confusing since that's not considered a 'bad' return of capital. I think you know that many CEFs or MLPs that use ROC to sustain high divs/distributions -- that is 'bad' ROC and a red flag if it's an ongoing thing.

    SWAN is interesting[1], and tbh NUSI also looks interesting to me for income-oriented NASDAQ exposure, and I might play with that a bit.

    THLGX mentioned in this month's Commentary (the Alternate Funds discussion - it's in the charts) looks really interesting in terms of performance and stability, but I need to do add'l research on it before considering it as a SWAN-y holding. Doesn't seem to have lost much if anything in recent years' volatility and looed to have done better than SWAN (albeit at a higher price.)


    [1] You could roll the same thing on your own if you wanted to, as its holdings aren't many and are easy to get: https://amplifyetfs.com/swan-holdings.html
    Rickrmf said:

    Hi Rforno, yes, very I’m intrigued by NUSI, also DRSK. I think the focus articles on TMSRX make it attractive too. Any thoughts on best fit for a taxable account(not looking for income)? I’m having trouble understanding how options distributions are characterized. So far, I’m happy with SWAN.
    Best of luck,
    Rick

  • edited September 8
    Defensive ETFs:
    SWAN
    DRSK
    PHDG
    TAIL

    Defensive MFs:
    ARBIX ($25K min)
    BAMBX
    MNWAX
    HMEAX
    SVARX
  • I have owned TAIL as I am not comfortable buying puts etc myself. IT has done a reasonable job of dampening down the losses in my portfolio without dropping like a stone since April

    The nice part is you know what you get. Many of these multi sector funds can do anything and you dont really know what is next
  • Interesting to see the performance of these defensive funds over the past one week. Quite a variance! Some of the one week performances I follow, per my watchlist on Morningstar:
    SWAN -3.62
    DRSK -1.22
    NUSI -7.29
    PHDG -7.61
    SGOL +.32
    TAIL +.07
    TMSRX -.29
    BAMBX -.78
    IQDAX +1.02
    ARBIX 0

    My goal for this part of my portfolio is to reduce risk and perhaps start to replace some of my vulnerable bond funds and low vol. equity funds. I already added SWAN (which seemed to perform in the mid range of this group), and looking seriously now to pair it with one of the alt. mutuals. I’m still intrigued by David’s TMSRX write up, but ARBIX and IQDAX look good as well.
  • edited September 9
    IQDAX has a $100,000 minimum in general. Not sure if there are any brokerage platforms that offer a lower entry amt.
  • Barcharts website has a screener that shows the top mutual funds for the last five days, as well as other periods of time. A separate search showed that MERFX and HMEAX were both positive for the last 5 days, while BALPX lost -.33% .
  • I have owned MERFX and ARBIX for years

    They haven't done much at all. Total position is up 6% since 1/2019
  • But since I use MERFX as a cash substitute, 2%-3% per year is fine with me
  • carew388 said:

    But since I use MERFX as a cash substitute, 2%-3% per year is fine with me<

    The problem is for me a cash substitute fund cannot have sustained a loss greater than 2% in a year, and preferably no loss ever. Why take the risk with such meager returns? My cash subs include, SNGVX (1 off year in 31, so it gets a pass on my 2% rule); BBBMX; GILPX, VNLA (ETF) and even good old BSV (ETF). You can buy with confidence that any loss will be small and temporary. Not so clear with MERFX, which suffered a 5.67% loss in 2002 and 2.26% loss in 2008.

  • i use them as alternative assets that should have low correlation to the overall market, but I agree that in really volatile markets that breaks down
  • wxman123 Thanks for the GILPX suggestion. That fund's quarterly loss (per Schwab) was lower than TRBUX BBBMX and DLSNX which I was using before.
  • Re-reading...
    BRUFX. Not doing much other than almost just plain sitting still, this year. But ranked highly. Dependable. It's a balanced fund. Right now = down to 16% in Fixed Income. Wifey owns it.
  • TRPBX. Not a recommendation, just a thought. Because PRWCX is closed to new investors.
  • This is from someone who as been playing defense for last 15-20 years. Been a while since I visited the site and for good reason.

    My answer to the question - Sell deep OTM options. Pay taxes. No one went broke paying taxes. The last 5 months have been the best of my investing life. Based on your risk tolerance level invest in index funds, then take half of your cash and try to earn income on it. Enough defense you will need IMO.

    I've been generating $500 consistently with $20000 in my Vanguard account without ANY trouble every month. That's a 2.5% return per month. That's 30% a year. Pay taxes.
  • [email protected] : glad to hear how you're doing with newest investing in OTM. Are there other new places you're investing in at this time?
    Stay Safe, Derf
  • @VF, best wishes. It is good to hear from you.
  • edited September 12
    The original OP mentioned tax efficiency. That’s where I stepped off ship as my investing is 95+% in tax sheltered vehicles. But I’d be remiss not to mention that the Lipper analytics which can be accessed through Reuter’s and some other venues does rate funds on “tax efficiency.”

    There are many other concerns of course, but if seeking information on tax efficiency you could do worse than to consult Lipper. I’ve run several of the funds mentioned in this thread through the Lipper screen. The large majority score quite poorly. I suspect that the hedging tactics that make these defensive to some extent also generate a lot of taxable income or short term cap gains.

    Here’s a couple that I checked:

    MERFX scores reasonably well garnering 4 out of 5 for tax efficiency according to Lipper.
    http://www.funds.reuters.wallst.com/US/funds/overview.asp?symbol=MERFX.O

    BAMBX, on the other hand, scores poorly, receiving the lowest (1 out of 5) rating for tax efficiency.
    http://www.funds.reuters.wallst.com/US/funds/overview.asp?symbol=BAMBX.O

    I own TMSRX but didn’t check. I assume it’s too new for Lipper to have rated. To be succinct, there are no easy answers to playing defense in today’s environment. A healthy slug of cash equivalents and / or short-medium duration AAA bonds, rebalanced periodically and faithfully is one part of the answer. Yes - I too like TMSRX and David has done a good job profiling it. If anybody here is willing to write a complete analysis explaining each of TMSRX’s five subsets, how each subset is managed and what its current positions are, and how different economic fundamentals might impact each of those 5 subsets as presently positioned, I’d enjoy the read. The “under the hood” workings of this highly complex approach remain largely a mystery to me. TMSRX’s 1.22% ER, while reasonable for a hedge-type fund, is still a bite out of your long term returns and substantially more than for a plain vanilla AAA rated short-medium term bond fund.
  • You can also make your own assessment by review the year-end distribution from year to year. What you should be looking at is the amount of taxable distribution, i.e. dividend and short term cap gain (taxed at your income bracket) and long term cap gain (lesser concern since it is taxed at 15%).

    Based on 2019, the TMSDX dividend and short term cap gain are reasonable small and is probably okay to be held in taxable accounts.

    Learned long ago NOT to hold equity funds with turnover well over 100% - be ready to pay those large cap gain by year end. Index funds are tax efficient on this aspect. Dividend will be taxable and it is okay.
  • edited September 12
    One of my best “sleep well” funds is PRPFX - not normally thought of as defensive. They spread the money around in some very diverse assets (gold and silver, growth stocks, nat. resources, treas. bonds, the Swiss fanc, real estate). So, without expensive short selling or extensive use of derivatives they provide a reasonably stable return stream over multi-decades. The biggest problem is that it holds precious metals which are extremely volatile assets shorter term. Hence, many investors flock into this fund when gold is soaring and than leave in droves when gold slumps. So, fund performance soars and slumps with the tide.

    But it’s the last fund I would sell regardless of short term performance. A “set it and forget it” fund if there is one. Critics abound. I’ve heard: the manager can’t pick stocks, the ER is much higher than you’d pay to buy and hold the various assets, the manager’s other funds (including a short-term treasury fund) are losers. All probably true. But I still like it. About the same % of my holdings as TMSRX - both north of 10%. Tax efficiency? Lipper rates PRPFX 3/5.
  • I'm in the 10% bracket(wouldn't mind if it was the 28% bracket) so I never consider the tax implications of any oef's I purchase.
  • @hank: " But it’s the last fund I would sell regardless of short term performance."
    I guess you knew I was going to ask that question? Just for the heck of it I'm going to sell most of my small position .
    Stay Safe, Derf
  • @Derf - Sell while the surf’s up. Can’t argue with that.:)
  • hank said:

    The original OP mentioned tax efficiency. That’s where I stepped off ship as my investing is 95+% in tax sheltered vehicles. But I’d be remiss not to mention that the Lipper analytics which can be accessed through Reuter’s and some other venues does rate funds on “tax efficiency.”

    Morningstar calculates a numeric tax cost ratio. On the "new" M* pages, you'll find the three year figure on a fund's "Price" tab. It's also informative to look at the tax cost ratio over different time frames. Unlike ERs, tax costs can fluctuate quite a bit from year to year.

    You can find the 1,3,5, 10, and 15 year tax cost ratios on M*'s "legacy" pages. For example, here's the legacy tax cost page for TMSRX. (Replace the ticker with the fund of your choice for that fund's legacy tax cost page).
    http://performance.morningstar.com/fund/tax-analysis.action?t=TMSRX

    TMSRX has a one year tax cost ratio of 1.11%. Its one year return was 9.40%. After tax, its one year return was 8.18%. If you started with $10K, after a year you had $10,940 pretax, and $18,818 post tax. That is, after taxes, you were left with $10,818/$10,940 (98.89%) of your investment. Taxes took 1.11% of your end of year value.

    Not bad, but not great. For example, two peer multialternative funds (M*'s classification) are DRRAX and DVRAX. Their one year tax cost ratios are 0.80% and 0.37%. On the other hand, another peer, BAMBX, has a 1 year tax cost ratio of 1.28% (and a three year ratio of 1.98%).

    While I pay some attention to tax efficiency, I consider it of secondary importance. Certainly I don't want a fund that's spinning off a lot of interest (except for a taxable bond fund), nonqualified divs, or short term gains. So I find it good to check for extremes. But beyond that, it's better to have a fund that's making money and losing some of it to taxes than to have a fund that's losing money in the market while losing nothing to taxes.
  • edited September 15
    Rickrmf said:



    My goal for this part of my portfolio is to reduce risk and perhaps start to replace some of my vulnerable bond funds and low vol. equity funds. I already added SWAN (which seemed to perform in the mid range of this group), and looking seriously now to pair it with one of the alt. mutuals. I’m still intrigued by David’s TMSRX write up, but ARBIX and IQDAX look good as well.

    My choice would be ARBIX. I like its risk/reward, the chart looks better without drastic up/down days and consistency. Also check PV(numbers). It has the best performance, SD, Sharpe, Sortino.

  • @FD1000...I hold a six figure + position in IQDAX...they do post a risk profile on their website from late June...kinda gives you an idea of how the fund would react dependent on vol, crude, fx, etc, but still there is a "black boxey" element to it and it makes me a tad uncomfortable to invest more...who knows what you really own there and what kind of down day out of the ordinary could happen?

    I saw you mentioning ADVNX, North Square Strat Income on the other board...interesting fund...curious if you have follow on thoughts about that one?

    How do you feel about investing in funds that are not simply, stock and bond holdings? Do you limit to part of your portfolio or to what level of assets would you be comfortable investing to?

    Best regards to all,

    Baseball_Fan

    (sure would be entertaining to see a White Sox vs Padres World Series!)
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