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Osterweis Strategic Income - OSTIX

edited July 17 in Fund Discussions
From M*: "Osterweis Strategic Income is a unique high-yield offering with a strong risk-adjusted return profile, particularly over the longer term." It also rates the fund's risk as "low".

I am using this fund along with NVHAX and RCTIX in the bond portion of my portfolio. While its YTD total return is "only" 4.2%, its 3, 5, 10 and 15 year returns range consistently between 5 and 6%. The fund's average effective duration is currently 1.9, and the standard deviation 5.7.

As a conservative and retired investor, I am quite happy with OSTIX's consistent performance over the past 15 years. Thought it deserves to be mentioned again since the last time this fund was discussed was nearly a year ago.

Fred

Comments

  • Good one. One of better performing MS Income funds this year. Here's summary of Osterweis family YTD:

    image

  • @Charles : Thanks for posting chart. With that said , what makes OSTGX a GO ?
    Risk 5 - APR vs Peer (-4.3 ) !! Would MAXDD - 6.2 be a plus ?

    Thanks, Derf
  • edited July 18
    @Derf,
    The data Charles posted is only 6 months long from 2021, Jan to 2021, June. MFO risk ranking reflected the fund has not done well in 2021 as the rotation of growth stocks to the value funds (large and small stock funds) started in late 2020. A small pullback in May 2021 is reflected in the -6.2% MAXDD. Many small cap growth funds are volatile. You can review the longer track record of OSTGX in MFO Premium.

    OSTGX has been profiled by David Snowball on September 2020 in the link below.
    https://mutualfundobserver.com/2020/09/osterweis-emerging-opportunity-ostgx/#more-14549
    Jim Callinan the fund manager has an excellent and long track record in small cap growth stocks. When the environment favors this asset class, the fund excels comparing to his peers.

    OSTIX was a recommended bond fund for his clients by BobC who retired from his advisory business. I invested with this fund as well for the same reason as @fred495 stated - consistency for year-to-year.
  • Thanks @Sven . I must have been sleeping at the switch !
    Derf
  • Thanks guys. BTW. Most of the Osterweis funds have pretty impressive rolling batting averages since launch.
  • DHHIX for my money in HYB land.
  • DHHIX soon to be BrandywineGLOBAL – High Yield Fund

    https://www.sec.gov/Archives/edgar/data/1032423/000103242321000092/finalsupplement.htm

    497 1 finalsupplement.htm 497

    DIAMOND HILL FUNDS
    Diamond Hill Corporate Credit Fund
    Diamond Hill High Yield Fund
    (All Share Classes)
    Supplement dated June 30, 2021
    to the Prospectus, Summary Prospectus and Statement of Additional Information
    dated February 28, 2021 As Amended

    A Special Meeting of Shareholders of Diamond Hill Corporate Credit Fund and Diamond Hill High Yield Fund (each a “Fund” and collectively the “Funds”) was called on June 11, 2021, at 10:00 a.m. Eastern Time, to approve Agreements and Plans of Reorganization (each a “Plan” and collectively the “Plans”), which provide for the acquisition of all the assets and liabilities of the Diamond Hill Corporate Credit Fund by the BrandywineGLOBAL – Corporate Credit Fund in exchange for shares of beneficial interest of the BrandywineGLOBAL – Corporate Credit Fund and for the acquisition of all the assets and liabilities of the Diamond Hill High Yield Fund by the BrandywineGLOBAL – High Yield Fund in exchange for shares of beneficial interest of the BrandywineGLOBAL – High Yield Fund.

    Only shareholders of record as of the close of business on March 31, 2021 were entitled to notice of, and to vote at, the Special Meeting.

    On June 11, 2021, shareholders of the Diamond Hill Corporate Credit Fund approved the Plan. The Special meeting of Shareholders for the Diamond Hill High Yield Fund was adjourned until June 29, 2021. On June 29, 2021, the shareholders of the Diamond Hill High Yield Fund approved the Plan.

    Accordingly, the reorganizations are expected to occur after the close of business on July 30, 2021, or such other date as the parties may agree. The Funds will as soon as practicable prior to the closing date of the reorganizations, declare and pay to the shareholders of record of each respective fund, one or more dividends so that each will have distributed substantially all of the sum of (i) its investment company taxable income and (ii) its net tax-exempt income, if any.

    This document is not an offer to sell shares of either the BrandywineGLOBAL – Corporate Credit Fund or the BrandywineGLOBAL – High Yield Fund, nor is it a solicitation of an offer to buy any such shares.

    PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
  • Obviously the Diamond Hill HY team is great, I've been with them for years and very happy. My existing Brandywine fund (LFLAX) has been just as great in its own right.
  • wxman123 said:

    Obviously the Diamond Hill HY team is great, I've been with them for years and very happy. My existing Brandywine fund (LFLAX) has been just as great in its own right.

    You might want to explain what you mean by "just as great in its own right." It must include metrics beyond TR but I'm not seeing how any other metrics could cause someone to see these two HYB funds as "equally great."

    TR 1yr, 3 yr, 5yr, Life
    DHHIX: 17.3%, 10.6%, 10.3%, 9.1%
    LFLAX: 5.6%, 7.0%, 5.9%, 6.2%

  • In the interest of clarification (or perhaps obfuscation if you read the following), Brandywine funds and BrandywineGLOBAL (caps in original) funds are completely different.

    As I described in this AMG thread, Brandwyine funds were affiliated with and then acquired by AMG a couple of decades ago. They were rebranded AMG Brandywine, and earlier this year completely overhauled. The original management company Friess Associates was jettisoned as submanager. Friess then relaunched Brandwine funds as Friess Brandywine.

    Legg Mason acquired acquired Brandywine Asset Management Inc. in early 1998. On August 17, 1998, Legg Mason launched Brandywine Small Cap Portfolio, managed by Brandywine Asset Management. It was a fund designed for institutional investors ("pension plans, endowments, and foundations"), and was based on a private portfolio managed by Brandywine Asset Management.
    https://www.sec.gov/Archives/edgar/data/1052864/0000950169-98-000952.txt

    As of Dec 29, 1999, "Shares of the Brandywine Small Cap Portfolio [were] no longer being offered." Legg Mason's Brandywine moniker seemed to have vanished for several years.
    https://www.sec.gov/Archives/edgar/data/1052864/000095016899003221/0000950168-99-003221.txt

    Then in early 2006, Brandywine Assset Management changed its name to Brandywine Global Investment Management LLC. Shortly thereafter, Legg Mason launched what appears to be the first Brandywine Global submanaged fund: GOBIX, then called Global Opportunities Bond Fund.
    Prior to April 30, 2012, the fund was a series of a corporation named Legg Mason Charles Street Trust, Inc. ... Effective October 5, 2009, ... the fund’s name [was changed] from Global Opportunities Bond Fund to Legg Mason Global Opportunities Bond Fund. Effective May 21, 2010, ... the fund’s name [was changed] from Legg Mason Global Opportunities Bond Fund to Legg Mason BW Global Opportunities Bond Fund.
    https://www.sec.gov/Archives/edgar/data/1474103/000119312512175846/d296312d485bpos.htm

    The insertion of BW was the first time "Brandywine" seeped into the Legg Mason funds' names. But it was cosmetic; nothing about the management of the funds changed.

    On Dec 29, 2017 the rebranding was complete, though again it was merely cosmetic:
    Effective December 29, 2017, the fund will be renamed BrandywineGLOBAL – Global Opportunities Bond Fund.
    * * * * * *
    The change to the fund’s name is being effected as part of a rebranding of Legg Mason funds subadvised by Brandywine Global Investment Management, LLC (“Brandywine Global”). Legg Mason Partners Fund Advisor, LLC continues to serve as the investment manager to the fund, and Brandywine Global continues to serve as subadviser. The fund’s investment objectives, strategies and policies are not changing as a result of the name change.
    https://www.sec.gov/Archives/edgar/data/1474103/000119312517331311/d473516d497k.htm

    The point of this story is that BrandywineGlobal funds are from Legg Mason. And unlike funds from other Legg Mason subsidiaries like Western Asset Management or Royce, the BrandywineGlobal funds are purely Legg Mason creations. There were no publicly offered BrandywineGlobal funds before Legg Mason launched them.

    That makes DHHIX different from other BrandywineGlobal funds. It is more like the Western Asset Management funds that carried on after the management firm was acquired. Here, Legg Mason (now Franklin Templeton) isn't acquiring Diamond Hill, but it is hiring the fund's complete management team.
    https://mutualfundobserver.com/discuss/discussion/57682/brandywine-global-investment-management-llc-to-acquire-diamond-hill-s-focused-high-yield-corp-cr
  • stillers said:

    wxman123 said:

    Obviously the Diamond Hill HY team is great, I've been with them for years and very happy. My existing Brandywine fund (LFLAX) has been just as great in its own right.

    You might want to explain what you mean by "just as great in its own right." It must include metrics beyond TR but I'm not seeing how any other metrics could cause someone to see these two HYB funds as "equally great."

    TR 1yr, 3 yr, 5yr, Life
    DHHIX: 17.3%, 10.6%, 10.3%, 9.1%
    LFLAX: 5.6%, 7.0%, 5.9%, 6.2%

    LFLAX is not a HY fund. It's a multisector bond fund. Compare it to its category and you will better understand my comment.
  • wxman123 said:

    stillers said:

    wxman123 said:

    Obviously the Diamond Hill HY team is great, I've been with them for years and very happy. My existing Brandywine fund (LFLAX) has been just as great in its own right.

    You might want to explain what you mean by "just as great in its own right." It must include metrics beyond TR but I'm not seeing how any other metrics could cause someone to see these two HYB funds as "equally great."

    TR 1yr, 3 yr, 5yr, Life
    DHHIX: 17.3%, 10.6%, 10.3%, 9.1%
    LFLAX: 5.6%, 7.0%, 5.9%, 6.2%

    LFLAX is not a HY fund. It's a multisector bond fund. Compare it to its category and you will better understand my comment.
    Oh, my bad. As the thread is about OSTIX, a HYB fund, I guess I incorrectly assumed that any comparisons/suggestions would be HYB funds.

  • I owned OSTIX for many many years, and M* chose to place it in the multisector bond category during those years, even though it held almost exclusively high yield bonds. Supposedly, the reason from M* had to do with its prospectus statements about flexibility to invest in a wide variety of assets, besides High Yield Bonds. During those years, its portfolio looks almost identical to what it holds today. However, a couple of years ago, M* chose to move OSTIX from the multisector bond category to the High Yield Bond category, even though it continues its same basic investing strategy, as it historically has used.
  • Looking what is under the hood would be helpful when evaluating mutual funds. Also the annual reports provide additional information on portfolio composition and the benchmark(s) used for that particular fund.

    As @dtconroe stated, OSTIX has always invested in high yield bonds while some of characteristics are unique to the fund. The fund has one the shortest duration and invests in the higher credit quality end of junk bond spectrum. Overall the fund provides a modest total return while having a lower risk among typical high yield bonds. YIeld-to-date OSTIX is doing very well and gaining over 4% whereas many bond funds are barely breaking even.
  • dtconroe said:

    I owned OSTIX for many many years, and M* chose to place it in the multisector bond category during those years, even though it held almost exclusively high yield bonds. ... During those years, its portfolio looks almost identical to what it holds today. However, a couple of years ago, M* chose to move OSTIX from the multisector bond category to the High Yield Bond category...

    Perceptions of time are often nonlinear (elongated, compressed, etc.) It was further back, some time in the last couple of months of 2013 when M* moved OSTIX from the multisector bond (MU) category to the High Yield Bond (HY) category.

    On the M* page below, click on the "Expanded View" tab to see all of the past ten years and how the fund was classified in each of those years.
    http://performance.morningstar.com/fund/performance-return.action?t=OSTIX

    Fortunately, the Wayback Machine took a snapshot of the M* fund portfolio page as of Oct 31, 2013. The portfolio data on that page is dated Sept 30, 2013. It shows that the last time OSTIX was placed in the multisector bond category, an eighth of the bonds were rated AAA. IMHO that's not a portfolio that's "almost exclusively high yield bonds".

    By the same token, that strikes me as a significant difference from today's portfolio, where only 2.35% of the bonds are investment grade, and none above BBB.
    http://portfolios.morningstar.com/fund/summary?t=OSTIX&region=usa&culture=en-US

    I'm not very familiar with this fund, so all I'll say about the strategy (having just looked at a few snapshots over time and read the strategy section of its prospectus) is that I'm inclined to agree that its strategy hasn't changed over time. But ... that strategy may led it to begin investing "almost exclusively [in] high yield bonds" some time after the stock market took off post GFC. Same strategy, changed market conditions, changed classification.
  • I did not go back and see how long ago it was the OSTIX classification changed from the M* Multisector Bond category, to the M* High Yield Bond category. Instead of using the phrase "a couple of years ago", I should have used the phrase "a few years ago". I have not followed OSTIX since I sold it, but when I looked at it recently, because a poster friend purchased it, it strongly resembled what I use to own when it was classified as a Multisector Bond Oef.
  • OSTIX started August 30, 2002. So it's been around for about 19 years. It was classified as a multisector fund for just over 11 of those years, and as a high yield fund for nearly the past 8 years. You describe the 11 years (or less) when you owned it (during which time M* classified it as multisector) as "many many years". While the 8 years since M* reclassified the fund are described as just "a few years".

    As I said, people's perception of time is often nonlinear. Perceptions don't matter, though. What matters are the actual numbers. Nearly 8 years since reclassification. Long enough that it would be inappropriate to compare OSTIX with multisector funds even based on historical performance.

    The fund's portfolio for many years did, as you said, strongly resemble its current portfolio. However, its earlier portfolios did not. In its early years, OSTIX was significantly more diversified.

    As M* described the fund its Dec 2011 analysis, "The managers can and have bought convertible bonds, preferred stock, and floating-rate notes in the past, but currently--and for much of the past few years--the portfolio has focused on shorter-term high-yield corporate bonds."

    Multisector funds typically are more diversified than high yield funds. As OSTIX became less diversified, it more closely resembled high yield funds. Hence the reclassification in 2013, albeit with a substantial lag.
  • stillers said:

    DHHIX for my money in HYB land.

    That one is news to me. Looks like a great find. I'm putting it on my list! thank you.
  • I have been following the various discussions about OSTIX on various investment forums (MFO, Armchair, Big Bang). I have done some additional due diligence on this fund recently, just to see if I have some renewed interest in possibly owning it. I have concluded that I am not interested in purchasing this fund. I simply can find better alternatives, that offers similar total return, with lower risk metrics. Just owning it because if offers "dedicated HY Bond" exposure, is not enough of a reason to own it for me. I own several bond oefs from the multisector and nontraditional bond categories, that offers significant exposure to HY bonds, and find no compelling reason to own it, just because it is a dedicated sector HY bond fund. So, I will pass on it.
  • @dtconroe : Thanks for chiming in, I always like to hear what other people have to say.
    Derf
  • dtconroe said:

    I have been following the various discussions about OSTIX on various investment forums (MFO, Armchair, Big Bang). I have done some additional due diligence on this fund recently, just to see if I have some renewed interest in possibly owning it. I have concluded that I am not interested in purchasing this fund. I simply can find better alternatives, that offers similar total return, with lower risk metrics. Just owning it because if offers "dedicated HY Bond" exposure, is not enough of a reason to own it for me. I own several bond oefs from the multisector and nontraditional bond categories, that offers significant exposure to HY bonds, and find no compelling reason to own it, just because it is a dedicated sector HY bond fund. So, I will pass on it.

    Not sure, but your last comment appears to be in reference to fred495 who on Monday on armchairinvesting stated,

    https://armchairinvesting.freeforums.net/thread/616/bond-oefs-2021?page=20

    "As I said, I was drawn to OSTIX because of its consistent total return performance of between 5 and 6% over the past 3, 5, 10 and 15 years and its low duration. Additionally, I had no dedicated corporate HY bond exposure in my portfolio."

    So fred's primary reason for owning is "its consistent total return performance" with his need/desire for HYB exposure as a secondary reason.
  • edited July 28
    stillers: "So fred's primary reason for owning is "its consistent total return performance" with his need/desire for HYB exposure as a secondary reason."

    I am quite sure Fred does not need to have you speak on his behalf. I have had several forum discussions with Fred about his decision to invest in OSTIX, both at MFO and Armchair. He has his reasons for choosing to invest in OSTIX, but I did indicate to him I was going to do some updated due diligence on OSTIX to determine if I might have some renewed interest in it. My last post was just a post that I had completed my due diligence consideration of OSTIX, and don't have any personal interest in adding it to my portfolio. Fred and I have many conversations about bond oef investing, and I greatly respect his well thought out process of selecting bond oefs, but in this particular situation, we are just making different decisions about ownership of OSTIX
  • edited July 28
    Just to round out the picture, in addition to the reasons I already mentioned, OSTIX is also a good fit for my portfolio since I wanted a fund to complement my other bond funds. RCTIX, for example, is heavily concentrated in securitized issues. OSTIX, on the other hand, is primarily focused on the corporate sector, and NVHAX on munis.

    Hopefully, the benefits of diversification will play a positive role in this rather uncertain interest rate environment.

    Thanks, as always, appreciate your comments and suggestions.

    Fred
  • edited July 29
    FWIW, Zack's summary on OSTIX, with the last excerpted statement perhaps being the most important:

    https://finance.yahoo.com/news/ostix-strong-bond-fund-now-110011455.html

    Excerpt:

    Bottom Line

    Overall, The Osterweis Strategic Income Fund ( OSTIX ) has a neutral Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and higher fees, this fund looks like a somewhat average choice for investors right now.

    Don't stop here for your research...
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