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Hoping for Explanation re Intermediate Bond Fund Investments

CathyGCathyG
edited June 2011 in Fund Discussions
I have been reviewing the investments of several Intermediate Bond Funds. They either have no, or very little Treasuries (maybe a good thing), but I am concerned about the high percentages of Mortgage CMOs and Mortgage Passthroughs (95% in DBLTX, 74% in TGLMX (neither which have any Treasuries) and 60% in PTTRX (which, surprisingly, DOES have 12% in Treasuries which I thought he sold all).

Are these mortgage CMOs and passthroughs ANYTHING like the junk mortgage stuff that caused the last crash in 2008? If different, are they safer and can you help me understand why?

Cathy

Comments

  • fundalarmfundalarm
    These are good questions to be asking BEFORE investing in these funds, not after. Yes, Cathy, these are the same securities, only they have been purchased already at prices reflecting the decreased cash flow/ increased default, etc. etc. So -- i certainly hope so -- the managers purchased them at some 20c on a dollar and did their due diligence on each stractured security to calculate the upside. Many trash level unsecured tranches were washed away and priced at 0 during 2008/2009. These securities doubled and tripled since the November low of 2008 (the credit market low), and are due for a pullback. Especially, as stated in my comment to Catch, when Fed has entered the market trying to sell billions of these same securities purchased from AIG. Thus, some of the pullback in HY and MBS is technical in nature.
  • CathyGCathyG
    Thanks for your comments, fundalarm, it's so great that you are now able (and willing) to participate so we can hear your opinions!

    If I may ask, what styles/sectors and/or specific mutual funds do you feel will be the most protective considering these economic conditions during next 1-3 years to help offset market downslides? I am looking to add a little more to a portion of our investments where my minimal goal with this portion is 4% (i.e., better than zilch returns on cash/cd's right now but I don't expect more). I have, and like, WEFIX (5%) and am thinking about adding 3% more.
  • BRBond
    CathyG,
    You are looking at PTTRX holdings as of 12/31/2010, so BG hadn't yet sold all Treasuries. Mortgage pass-throughs from Fannie and Freddie are effectively US government obligations. The biggest risk here is that most trade at a premium and all return principle at par. Other pass-throughs and CMO's require a great deal of analysis and IMO should be avoided as direct investments by individuals. How well a fund does with them is a result of effective analysis, diversification and prognostication.
  • CathyGCathyG
    Thanks for your explanation, BRBond. Sounds like I'm back to my original main investment criteria of finding the best mutual fund managers who understand all this much better than I do.
  • fundalarmfundalarm
    edited June 2011
    Thanks for the kind words, Cathy. I don't have a strong opinion on the asset class currently. It has been overpriced recently as the commenter BRBond pointed out. it is now probably better priced, with some real opportunities. You need to trust your fund manager to be able to mine through the data. Insitutionally, we give mandate to a manager who knows the space and purchases deeply discounted odd lots with fairly close maturities which pay every cent in coupons and retire at par. Individually, I am with TCFVX -- not that i have any specific insight in their process, but they have a decent team to run this distressed credit strategy.
  • CathyGCathyG
    Thanks for your follow-up, fundalarm. That's why I feel much safer investing in mutual funds whose managers I feel I can rely on rather than trying to be a stock picker/day trader..... I definitely don't have the temperament even if I knew what I was doing.
  • InvestorInvestor
    I have the feeling that you are confusing fundalarm (JR) with fundmentals.
  • InvestorInvestor
    I remember reading a recent article that Gross recently bought some treasuries back. Most up to date info should be on PIMCO web site.
  • CathyGCathyG
    edited June 2011
    No, I didn't confuse fundalarm with fundmentals. I'm afraid something awful has happened to him that will prevent him from ever joining us again. I wish I knew if he was ok and if I can help him or his family in any way.
  • CathyGCathyG
    edited June 2011
    Hi, fundalarm. I was curious about TCFVX, but couldn't find it in Morningstar. Is that the correct symbol? Cathy
  • ibartman
    re: "Curious about ...."

    Believe that the fund in question is TFCVX, Third Avenue Focussed Credit:

    http://quote.morningstar.com/fund/f.aspx?t=TFCVX.

  • [Deleted User]
    The user and all related content has been deleted.
  • fundalarmfundalarm
    TFCVX sorry!
  • CathyGCathyG
    Thanks, ibartman, just saw fundalarm corrected also.
  • CathyGCathyG
    No problem - thanks for the correction.
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