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.
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.
Best of luck,
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, 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.)
 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
ARBIX ($25K min)
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
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.
They haven't done much at all. Total position is up 6% since 1/2019
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.
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.
Stay Safe, Derf
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.
BAMBX, on the other hand, scores poorly, receiving the lowest (1 out of 5) rating for tax efficiency.
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.
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.
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 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
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).
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.
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,
(sure would be entertaining to see a White Sox vs Padres World Series!)