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IOFIX Imposes 1% Redemption Fee

Comments

  • They must be in a pinch from redemptions and don't see a happy path forward.
    Pretty sad state of affairs.
  • edited August 2020
    Thanks Charles. IOFIX since the crisis bottom has been the bond trade of the decade along with its sisters BDKAX, SEMPX, and others in the beaten down mortgage space. The last such trade was junk corporates in 2009 and before that emerging markets debt in 1999. Back further was junk corporates in 1991. Notice the theme here? Black swan events in 2020 (Covid liquidity crisis) 2008 (housing crisis) 1997/1998 (Asian currency crisis) and 1990 (Drexel Lambert) And after each crisis everyone was too scared to venture back in thinking a repeat is right around the corner. I love the fund company has imposed this fee. It will make for a more stable asset base.
  • You are on the ball Charles! I hope the redemption fee will prevent a repeat of the March freefall, or at least lessen it. We will see if other funds will follow suit.
  • Ha! I received a tip from a friend.
  • edited August 2020
    Years back some funds that I owned had a 2% redemtion fee if the position was held less than 30 days. If I remember correctly this fee was paid to the managers and did not benefit fund shareholders. Wonder who gets benefit of this fee when imposed?
  • msf
    edited August 2020
    AFAIK, the longest redemption fee period ever was imposed on (no surprise) Vanguard Horizon funds. These were four funds created as long term investments on August 14, 1995. The fee was 1% on shares redeemed in less than five years.

    Here's the last prospectus (Feb 27, 2001) where the fee was imposed on all the funds.

    On April 6, 2001, Vanguard made changes to three of the four funds:

    Vanguard Global Asset Allocation (VHAAX) was designated to be terminated on July 27, 2001.
    Vanguard Global Equity fund (VHGEX) ended its redemption fee.
    Vanguard Strategic Equity Fund (VSEQX) ended its redemption fee.

    It would be a while longer before Vanguard dropped the redemption fee on its Capital Opportunity Fund (VHCOX). And now you know where the 'H' in the ticker came from.

    (Note: I exclude funds like Twentieth Century Gifttrust, which could not be redeemed, period, for at least ten years.)
  • Twentieth Century Giftrust- that's a name I hadn't heard of in a while.

    The Surprising Success of a Dumb Investment
    What are the lessons I take from all this? First and most important, the experience illustrates how much wealth you can build even if you don’t invest in just the right stock funds. Buying, holding and watching your money grow is really hard to do—witness the Giftrust lawsuits—but it usually pays off.

    But I also learned that every investment strategy goes in and out of style. And so it was with Giftrust’s momentum strategy. What’s more, Giftrust was 20% more volatile than the S&P over the past 15 years. I’ve never known a fund that didn’t ultimately pay the price for such high volatility. In investing, slow and steady really does win the race.
  • I'm thinking Junkster is making lots of sense, here.
  • dang. and i was just about to buy more. but, yes, i agree w/ jungster -- er, ah, junkster -- and crash: it's a good thing.
  • I honestly believe there is a strong case for a lawsuit here—mispriced on the way down and mispriced on the way back up so some shareholders get more than they deserve and some a lot less. This should never have been an open end mutual fund. The assets aren’t liquid enough. I also think while a 1% redemption fee is useful, shareholders with double digit losses will simply take the loss and move on regardless of paying the extra 1% if things get volatile again.
  • There an easy way to not pay early redemption. I have done it several times over the years but usually I don't buy a fund that has penalty fee over 30 days. If you don't know how to avoid the penalty then you will continue not to know it :-)

    I sold IOFIX at the end of 02/2020 and I'm not going to buy until I feel better about it. Most of my money is in HY Munis.

    I did hold a small position in EIXIX instead for several weeks. This fund hold higher rated securitized bonds than IOFIX based on the fact it didn't fall so much in March.
  • @msf. Very cool. Thank you.
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