Bond Investors Are Better Off in ‘Interval Funds.’ Here’s Why.
- Lewis Braham
“In the world of bond funds, one major underappreciated risk is the liquidity imbalance that exists between funds and their shareholders. Traditional bond mutual funds and ETFs must provide their shareholders with daily liquidity—in other words, investors must be able to withdraw any part or all of their investment on any day. That’s a mismatch to what the funds own, such as bonds that can have maturities of up to 30 years, or bonds that don’t trade daily.”
By Lewis Braham, Barrons May 25, 2020https://www.barrons.com/articles/bond-investors-are-better-off-in-interval-funds-heres-why-51590152400
(Good luck with above link. Better idea - Buy a copy of Barron’s
or subscribe. Amazon lets you cancel digital subscriptions anytime.) There seems to be an increasingly loud chorus
concerning bond funds of late. I’ve taken the liberty of adding a couple warning shots from two other seasoned observers. Notwithstanding: Lewis’s article is unique and approaches the issue from a different direction.
- - - Plague Investing
- Ed Studzinski
“So, for your investable assets, I am sticking with my recommendation for a barbell strategy. For fixed income, limit yourselves to short-duration, short-maturity investments where the funds are managed by experts who have been doing real credit analysis for years. You can find them by paying attention to the reviews that David has written. These situations are to be differentiated from those fixed income funds run by generalists who did things based on rating spreads in quality rather than real analysis. They are nothing more than high-yield tourists.”
Edward Studzinski - Mutual Fund Observor May 3, 2020
- - - What You Don't See Might Be What You Get
- Bill Fleckenstein
“ (For) those who have any bond funds, you have to be very careful unless they are all government bonds, because there's a lot of garbage in these funds and a lot of the credits -- which were probably overrated to begin with -- have certainly now deteriorated.
Thanks to one of our longtime readers, who runs a bond shop, and pointed out what happens when these funds see redemptions, which is that the most liquid bonds tend to get sold first, and they also tend to be the highest quality. In his words:
‘Without any change in investment strategy, such investors are left with a portfolio of assets that can be very different to the same portfolio at the time of investment … It is imperative for investors to ensure that they are not left in funds that are deteriorating in asset quality due to such redemptions.’
So, any of you in bond funds need to make darn sure that you know what you own. If you don't, it might be a good time to exit stage left.“
Fleckenstein Capital .com (Subscription Required) Excerpted from March 26, 2020 editionhttps://www.fleckensteincapital.com/home.aspx“In the tranquilly resounding corner, listening to the echoing footsteps of years”
- Charles Dickens