PAUIX versus PIMIX

andrei

Many people are attracted to funds managed by Arnott, such as PAUIX. They are discussed in the latest commentary by David. Perhaps I am missing something but if I understand correctly PIMIX behaves way, way better, and it looks much less risky too (thanks to Hiyield007 for attracting my attention to it long ago!). The main difference is that PAUIX may invest in anything, so now, according to M*, it shorts stocks. Perhaps this was not the best idea during the last year. Since inception, PIMIX is up 94% whereas at the same time PAUIX is up 62%. During the last year PAUIX is up 10%, after falling 5% in May, whereas PIMIX is up 20% in a nice and steady way. And it behaved much better in 2008 as well. PDI, a closed end fund which is run by the same manager as PIMIX, is rising up even much faster.

Any reason to expect that the situation is going to change in the near future?

scott

Apples/oranges comparison

BobC

The reason someone might own PAUIX is for the manager's ability to drastically change allocations at any time. PIMIX does not have that option. It must own bonds. That's fine if you are looking for a bond fund. But it does not offer any kind of diversification like PAUIX. The goal of PAUIX is to equal the CPI plus 5% over a full market cycle. That has been more than achieved thanks to the manager's talents. So the two funds are very different. One thing for sure, when we get to a period of escalating interest rates, I woul certainly rather be in PAUIX than PIMIX, just for the ability of PAUIX to not own bonds or to short bond sectors. Yeah, PIMIX can and will use the typical PIMCO derivitive mumbo-jumbo, but that may not be enough if bonds are being sold wholesale. I just suggest that your think about WHY the funds are different, not just what the returns have been. Just a thought.

andrei

Thank you all for comments. I do understand the difference. If I understand correctly PAUIX also uses typical PIMCO derivitive mumbo-jumbo, and PIMIX can short bonds and use leverage. Both PIMIX and PAUIX are equally tax inefficient; switching between them when PIMIX will start systematically underperform would be easy. So it would be a bit difficult for me to stay in a more risky and less profitable PAUIX waiting until rates start rising. But I can be wrong of course; my experience with bonds is relatively limited.

AndyJ

I think I'd give the "Arnott's so flexible" argument for PAUIX (and PAAIX) less weight now than formerly. He no longer has the flexibility he used to have when the fund had much lower AUM, largely because he'd wreck the underlying funds he invests in (remember it's a fund of funds) if he were to make a major asset shift these days. I've seen references to a new arrangement he has with Pimco on just that problem.

For the same reason, established FOFs (for example, RPSIX from Price) tend to have pretty solid neutral positions the managers tweak by only a few percentage points in either direction; I'd guess that's the future of the two Arnott sibling funds.

JimH

Heard Arnott speak two weeks ago. He stresses that his moves occur over longer time frames (several quarters at least) and sometimes is asked to slow his buying and selling by the underlying funds' managers. Many of those funds have large asset bases and All-Asset is spread over forty of them. Though I haven't kept track of how the fund shifts its allocation over time, it doesn't seem that the moves are drastic if "drastic" is equated with "quickly."