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Rough First Week

edited January 19 in Fund Discussions
My alternatives sucked. Combined 1 week return = -1.45% (neg)
4 Funds included: TMSRX, ABRZX, PRPFX, QED

My equity & balanced sleeve did better. Combined 1 week return = -.0.56% (neg)
4 Funds included : PRWCX, DODBX, RPGAX, FLJP

I’ve never viewed alternatives as “defensive”. But, over the past, they’ve held up much better than the equity & balanced funds in rough markets. I should note that two equity funds owned (the larger being GLFOX) and 2 stocks owned are not included in the above totals. Those are part of a separate “real assets” sleeve.

For comparison, here’s a few I track (1-week / Lipper)

HSGFX +3.44%

PRFDX +2.61%

PRAFX 0

HSTRX -1.43%

VFINX -1.83%

TRREX -3.32%

TRBCX - 6.19%

PRMTX -7.18%

ARKK -10.75%

Some factors that affected markets this week:

- Interest rates shot up. This hurt most bond holdings. It helped funds with outsized exposure to banks / financials. This is evident in the positive return for PRFDX - TRP’s Equity and Income fund. However, rate sensitive sectors / funds were hurt. Price’s real estate fund, TRREX, fell 3.32%.

- Minutes from last FOMC meeting were released indicating a more hawkish Fed stance / Ditto above.

- Data released showed accelerating wage growth. / Ditto above.

- Gold and p/m miners got slammed, though they’re still above their lowest levels of the past 12 months.

- Tech got whacked.

- Price’s PRAFX, their real asset fund, appears to have suffered from Schizophrenia, ending the week flat - caught between the plunge in gold and precious metals mining stocks and the whirlwind upside for many other metals. This one holds a lot of real estate, which also hurt.

One interesting tidbit ….. DFND, an intriguing looking defensive long-short fund I’ve been watching, tumbled more than 5% in the week. Now, how do you accomplish that?

Comments

  • Thanks for the overview of your thinking. I agree that higher interest rates this week affect many sectors of the market negatively, and left few pockets unscathed. Hope thing wills settle down in next few weeks.

    Glad to see "transitory" term is no longer mentioned in FOMC meeting minutes. Inflation is here and there are few tools the Fed has to combat that.

    As for investment I have rebalanced last year and sold majority of bond funds to money market, short term treasury and ultrashort bonds. This year will be challenging given inflation, slowing business due to COVID situation, and geopolitical unrest, but I hope I will be surprise on the upside.
  • edited January 9
    Thanks @Sven for the update. Hope changes work for you. I admit to being a bit “confluxed”.
    I’m positive longer term on gold & pm miners. But I, and a lot of folks (including Ray Dalio / Bill Fleckenstein) have been wrong on gold long enough now for Hell to have frozen over.

    Bonds won’t do well unless the Fed overshoots and tips the economy into recession. Only a fool would predict - IMHO.

    Missed opportunity: SARK, which sells Cathie Wood’s fund holdings short. Up over 37% since it opened in November. I reported the opening here, but was too dumb to put any money in it!
  • edited January 9
    This will be a very challenging year for fixed income.
    The Fed will end QE and probably raise short-term rates three or four times.
    It now appears that the Fed will also reduce its balance sheet.

    There will be increased volatility in the equity markets.
    Using the S&P 500 as a proxy for the US market, the largest drawdown
    was just 5.2% while the worst down day was only 2.6% in 2021.
    Despite this, the S&P 500 returned over 28% last calendar year!
    I don't expect this type of performance (low vol, high return) in 2022.
    It wouldn't be surprising if we experienced several corrections during the year.
    I wonder if the recent trend of value outperforming growth will persist?
    If one believes in reversion to the mean, value is "overdue."
  • edited January 9
    Observant1 said, "I wonder if the recent trend of value outperforming growth will persist?
    A very good question in deed ! Value started rolling about 15-16 months ago. It also went side ways for awhile before holding up better than growth last week , maybe sooner.
    Think I will start a position ,VMVAX in taxable account on Monday. I will also admitted I held VVIAX , & sold early. Pigs make money- hogs get slaughtered !

    Growth maybe a bit over bought ?, Derf
  • edited January 9
    hank said:



    Bonds won’t do well unless the Fed overshoots and tips the economy into recession. Only a fool would predict - IMHO.

    While not a prediction, the odds of this happening are certainly real.

    As an aside, I've found good discussion on this topic and Fed policy to be found on Bloomberg Surveillance, 6-8AM EST on radio/TV. They're more market oriented, and less of a focus on individual stocks when compared to CNBC. As an additional benefit, when I then turn to CNBC, Joe Kernen is off the air. More than one guest on this Bloomberg program has suggested that the Fed trimming their balance sheet may in fact have the same resulting impact on inflation as a rate increase.
  • edited January 9
    Growth stocks tend to lag in rising rate environment. Thus, quality stocks will do better with their lower valuation and dividend such as DIVO, SCHD and dividend growth funds. This week the value funds dominated. Same trend also observed in oversea market. Last year I exchanged part of the growth funds to several value funds, and it paid off well. Hopefully they continue to do okay in this slower growth cycle.

    Majority of my bonds are now in balanced funds whom I rely on their active management skills. Think the Fed made a bad call on inflation being "transitionary" without recognizing their easy monetary policy also inflate asset price in addition to the economy. Question how fast and high will the Fed raise the rates. Back in Volcker days, the rates were in double digits.
    https://fred.stlouisfed.org/series/
    FEDFUNDS


    Totally agree with @Observant1 that fixed income will have a challenging year.
  • edited January 10
    Mohamed El-Erian on CNBC this AM. Paraphrasing: He believes the Fed will adjust in "bunches" vs. a spread out rate increase to curb inflation that he thinks will be markedly higher than expected. That is what he has been warning about and the Fed is late and now has to thread the needle. Markets will fluctuate a lot. Becky (host) asked where investors should go.

    El-Erian said that's the issue. Cash is negative 7% due to inflation, Bonds are no good, Stocks will just be volatile.

    Edit/Add: 1/10/22: Marko Kolanovic, JPM - Higher Bond Yields should not be disruptive to S&P Index, Near Term: We recommend Buy the Dip as the market is oversold and can handle higher yields. The reaction to the Fed is overdone. Thanks for correction @BaluBalu

    Note: It's a paraphrase.
  • edited January 10
    “Cash is negative 7% due to inflation”

    I haven’t heard that one before. He’s right, of course. But what also needs be assessed in valuing cash as part of an investment approach is that over shorter periods cash may represent opportunity. That value is harder to assess. Goes beyond simply looking at current inflation numbers.

    Using his logic… If (1) your equity portfolio declines in nominal value by 25% over 1 year and (2) your cash level remains steady over that same year and (3) inflation advances by 7% over the year, than ISTM you end up this way on an inflation adjusted basis.

    Purchasing power after 1 year:

    Cash = 93% of starting value

    Equity portfolio = 68% of starting value

    I don’t know what the official inflation rate was between September 2007 and March 2009. But I’ll tell you cash was worth a whole lot more at the start of that 18 month stretch than equities were and maintained its purchasing power much better.
  • Edit/Add: 1/10/22: Marko Kolanovic, Morgan Stanley - Near Term: We recommend Buy the Dip as the market is oversold and can handle higher yields. The reaction to the Fed is overdone.

    Note: It's a paraphrase.

    Today's session had that "Buy the Dip" crowd out in full force. To squash that mentality would require a more serious market reset.

  • edited January 10
    +1

    (Glad you spelled force correctly.:))
  • edited January 10
    Marko Kolanovic is from JPM, not MS.
  • edited January 10
    hank said:

    +1

    (Glad you spelled force correctly.:))

    Was that a spin on "farce"?

    Those who only buy Mutual funds would have "missed out" on today's action. I'll be leaning more and more into ETFs in the future. Filled a few orders for ONEQ and SPLG this AM. Let the games begin.

  • edited January 10
    Think there is more to unfold in next several weeks. Ten year treasury yield is moving up since the beginning of the year and the bond prices are falling. The 10 year treasury rate jumped sharply from 1.512% on 12/30/21 to 1.780% as of today.

    The Fed has not even officially raising the rates yet.
  • A few more dippers would have been nice . Down .31 % for the day, .63 % for the month.
  • edited January 22
    Markets appear in disarray as of late . As of midnight the Dow was ahead by 1 point. Interest rates appear to have pulled back slightly, the 10 year at 1.76%. Precious metals firmed today. Of course, markets set rates farther out - not the Fed. Agree that markets are reacting to the Fed. Being of the bearish camp, I’m inclined to view any market action at the moment as superfluous. “It’s all a show kid …” as Billy Flynn intones in Chicago.

    Yes, dippers please do your thing!

    image
  • Nice touch hank. It looks like they were the saving grace again !
    have a good day, Derf
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