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Funds in Barron's, 7/25/22

There are several fund stories in Barron's this weekend.

FUNDS. Recommended are I-Bonds (9.62%; limit $10K/yr/TD account), individual TIPS (at Treasury Direct or brokerages), TIPS funds (short-term – TRBFX, STIP, VTIP; IT/LT – SCHP, VIPSX, TIP). Beware of confusing reporting of 30-day SEC yields for TIPS funds (some simply add current CPI to real 30-day SEC yield).

FUNDS. Co-manager and Westwood CIO Adrian HELFERT of allocation/flexible-income WWIAX (30-50% equities; ER 1.09%) looks for companies with dividends, cash flows, durable competitive advantages, and strong managements. He increased exposure to energy and real estate. Fund does some call-writing. In fixed income, he has reduced duration and watches for default risks (debt/EBITDA, etc). He expects the Fed to flip at some point. Westwood recently acquired the multi-asset fund business of Salient Partners.

FUNDS (online only). STABLE-VALUE (SV) funds within 401k/403b are complex products under insurance company or bank contracts. With high market volatility and rising rates, SVs have become very popular and record 85% of 401k/403b inflows in May went into SVs (that looks strange). But there are risks (lack of transparency; insurance company strength) and plan restrictions (equity-wash rules; flexible to limited redemptions). There was a recent lawsuit against AutoZone/AZO 401k-SV from Prudential/PRU (PRU recently dumped its retirement business including SVs on Empire).

FUNDS. Sammy SIMNEGAR of LC-growth FMAGX and international LC-growth FIVFX (unusual for a manager to run 2 major Fido funds) has soured on big techs (but likes other techs). He thinks that the Fed will be on tightening course until it achieves its +2% inflation target. To prepare for economic slowdown, he is avoiding housing (but owns selected REITs) and low-end retail stocks. He has reduced China exposure; he doesn’t take China-Taiwan risk seriously and owns TSM.

ETFs. Big DIVIDEND ETFs got bigger – SCHD, VYM, HDV, JEPI, SPYD, DVY, DGRO, RDVY, VIG, SDY, NOBL, DHS (listed by $inflows). Most had low exposure to energy except HDV and DHS.


  • edited July 23
    If I recall correctly only HDV of the ETF's mentioned has generated a positive return YTD largely in part due to it's energy holdings.
  • That is correct.
    HDV had 17% of its assets in energy as of July 15.
  • edited July 23
    Multiple managers departed from WWIAX in 2019 before Adrian Helfert took the helm.
    Four others joined the fund team with or after Mr. Helfert.
    The fund's three year returns are ok with a 37% fund category ranking.
    The downside capture ratio of 89.61% and the standard deviation of 11.58% were
    higher than the corresponding category averages of 76.48% and 9.58% respectively.
    WWIAX sports a high expense ratio of 1.09%.
    Surely, Barron's could have chosen a better allocation fund to profile.
  • edited July 23
    Broadly speaking, there are two types of stable-value funds.
    The first type has transparent fees, its underlying assets are owned by participating retirement plans,
    and contractural guarantees are diversified across multiple issuers.
    The second type is an insurance company general account (ICGA) stable-value fund.
    These ICGA products often have murky fees and the underlying assets are owned
    by a single insurance company which also provides the contractual guarantee.
    According to the Stable Value Investment Association, over 40% of stable-value
    assets remain in these products.
  • @Observant1, my concern with noninsurance company SVs is different. There are usually no guarantees by any entity. There are also no reserves held by sponsors for any contingencies. Rates offered may also be low. Sponsors just claim to invest cautiously, mostly in GICs and BICs and other fixed-income instruments. All it takes is one large holding to tank or freeze. So, buyer beware fully applies. BTW, I once wrote to a very large fund family that offers SVs asking what would happen in case of trouble or run on its SV? Its answer was only that it was highly unlikely because it was very careful and cautious, and that was it.

    On the other hand, insurance company SVs are guaranteed by insurance co capital & surplus, something that is tangible. These offer better SV rates. Of course, one has to watch insurance co ratings closely, and never to buy SVs offered by low-rated insurance co. A widely known such SV is TIAA Traditional that is guaranteed by TIAA, and if it goes under, there are probably lots of other problems. The same can be said about SVs from large, highly-rated insurers. If insurance co does fail, then the state insurance guaranty programs may handle the messy situation. So, there are 2 lines of defense.

    Federal TSP G Fund is a unique SV that is neither of the above. It is backed by none other than Uncle Sam (the US Treasury Secretary), and if Uncle Sam cannot keep its promise to pay, then things have probably worsened unimaginably.
  • edited July 24

    Thanks for your reply.
    Stable-value funds are low-risk but they are not entirely risk-free.
    I consider them to fall somewhere in between money market funds and shorter-term bond funds.
    Insurance company stable-value funds own the underlying assets instead of plan sponsors
    and investment contracts are provided by only this one company.
    Although the overall probability for insurance company insolvency is low, this risk must still be considered.
    Will state insurance guaranty programs reimburse stable-value fund investors if an insurance company fails?
    Since plan sponsors don't own the assets, performance, risk, and fee information may not be readily available.
    For peace of mind, I don't want to worry about this when holding stable-value funds.
    If investors have access to the TSP G fund, that is a good option.
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