Did any of you IOFIX/IOFAX fans catch the prospectus @Ted just posted for another Alpha Centric fund? Go to alphacentricfunds.com to see a fairly bizarre/agressive/innovative lineup of offerings. Now they are proposing a hedge fund in the wraps of a MF (i.e.; a wolf in sheep’s clothing) to invest in the healthcare and life sciences sector. As this sector has been the absolute pits since the end of last year, you cannot fault AC for jumping on the bandwagon.

At the beginning of every mutual fund prospectus is generally a little seemingly innocuous sentence: Past performance is no guarantee of future results. So what if it's been hot in the past? The only question that matters to anyone reading this right now is--Will it continue to be? Time and again, fees or all-in costs have been the strongest most consistent indicator of future performance. Are low costs always the best predictor? No, that's why people come to this site. But Morningstar is absolutely right to ding this fund for charging a 1.5% expense ratio on $3.3 billion in assets when bond funds that specialize in non-agency debt can be had for much less.

To each their own. Over two and a half years in March 2017 here at MFO I said IOFIX has been a “wonder to behold since inception”. In 50+ years in the game have never once looked at a fund’s expense ratio. Long ago in my book I wrote about exploiting the new fund effect. I used actual real money trading examples from new funds from Strong and INVESCO. I would have hated to have seen the expense ratios of these new funds.

"... It attracted more capital in last quarter of 2017 than in the first six quarters of its existence. It ended the year with $1.6B, five times the level it started the year..."
Jeepers. Is that a lotta "dumb money," then? Thanks for replying, all of you. I track IOFIX but don't own it. I own PTIAX, which is not quite the same animal, but in the same ballpark, right?

I fail to see what relevance the last quarter inflows in 2017 has to do with now September 2019. IOFIX has trounced every bond fund in the multi sector, emerging market, high yield corporate and high yield muni, as well as the non traditional bond categories over the past three years with a 10.50% annualized return. There is no close second. I would think the dumb money is the money still waiting to initiate a position. When that occurs it may be time to run for the hills. In the meantime, its compelling story of being heavily invested in the ever shrinking legacy non agency rmbs arena continues.

"... It attracted more capital in last quarter of 2017 than in the first six quarters of its existence. It ended the year with $1.6B, five times the level it started the year..."
Jeepers. Is that a lotta "dumb money," then? Thanks for replying, all of you. I track IOFIX but don't own it. I own PTIAX, which is not quite the same animal, but in the same ballpark, right?

There's nothing to read beyond what Crash posted, and that's the point.
Here's M*'s description of the AI methodology it uses
https://www.morningstar.com/content/dam/marketing/shared/research/methodology/813568-QuantRatingForFundsMethodolgy.pdf
The idea is that you train a classifier (positive, neutral, negative) for a pillar based on some of the funds that analysts have rated. You train another classifier on a different subset of the data, and so on. Then you run all these classifiers and see what the majority thinks.
Here's a simpler page on how this part of the process works:
https://towardsdatascience.com/understanding-random-forest-58381e0602d2
The bottom line is that even if you could get an explanation out of each classifier, what you're doing is polling a lot of classifiers ("pseudo-analysts") to get a consensus. There's no explanation for why some classifiers voted one way, while a larger number voted another.
Regarding the ratings themselves, Charles gave a fine writeup at the beginning of last year, explaining why the price pillar (1.5% vs. 0.85% category average) and the parent pillar are viewed negatively.
https://www.mutualfundobserver.com/2018/02/lightning-in-a-bottle-alphacentric-income-opportunities-fund-iofix-february-2018/
I think Lewis is on the right track regarding performance and process. While the fund is classified as multi-sector bond, by its own description it is a fund that is focused on a small niche. So while its niche has done well in the past (relative to the universe of investments open to multi-sector funds), its fortunes may shift as other investments in the multi-sector universe begin to look better.

Price, People and Parent "pillars." IOFIX. Not even neutral. Definitely NEGATIVE... Hmmmmm. Performance and Process are rated NEUTRAL.

fascinating discussion. It's been a good 10 years in the market so I have reduced equity holdings to about 50%. More of a tactical move though. Probably more driven by my fears of what the great idiot is going to do. I have alot in money markets and short term treasuries right now. Waiting for some kind of move and will probably open an initial position in IOFIX. @bee what are you doing with your "income milk."

Thanks MikeW. It's a Junkster term. The idea would be to screen for funds over say the past 3, 6, 10, or 12 months that have: 1) no drawdown, 2) low volatility, 3) high dividend, and 4) positive excess return. Something like that. IOFIX behaves that way. So does PIMIX. Most of the time. c

@Charles sounds like you're working on some cool new tools for MFO Premium. Being able to evaluate risk and return at the portfolio level would be incredibly valuable. Can't wait to see that. What is "tight channel" screening? Thanks very much for sharing where you are on IOFIX and ZEOIX. I enjoyed reading your analysis on IOFIX from last year.

@MikeW. I've been pretty much all-in with IOFIX, so nothing more to add really. (Hmmm ... unless I use margin.) As such, I watch it pretty closely ... and the folks at Garrison politely answer my inquires when the fund dips (eg., "Charles, the 5 penny move yesterday was just the dividend ... !"). My only other fund is ZEOIX, another steady-eddy. Gone are my days in funds like FAAFX, which I once called my "Great Pumpkin" fund. It's actually been having a decent year.

@junkster thanks for feedback. yes that's why I ask the question. With the incredible run in bonds YTD it feels like I'm late to the party in buying IOFIX which is what I think you are also saying too. I am a buy and hold guy... so this would be a long term hold but perhaps I should continue to wait for the bond market to sell off some.

@Charles has held this through thick and thin and that is the best way to play IOFIX - buy and hold. Anyone who hasn’t established a position it’s best to buy after a down day. Down days often occur a couple days before the second to last trading day of the month. Then again, if one hasn’t already had a position why now after its stellar returns since inception. I have been as high as 100% of my liquid net worth at various times the past couple years. As I detailed made the mistake of going from 89% to 55% recently and after today’s close back up to 67%. Will add more when I see a weak day or two. IOFIX seems correlated to absolutely nothing and why I call it the mystery fund. YTD everyone seems to be a bond genius and set for double digit annual returns in all sorts of bond categories so be wary of becoming a Johnny Come Lately.

@Charles and @Junkster . thanks very much for posting on IOFIX. I always value your thoughts on this fund. I saw big move up and wondered why when the overall bond market sold off a bit on Tuesday. Just curious if you would be adding to this fund or establishing a new position with the moves we're seeing in bonds. any thoughts are appreciated.

Junkster:
Re PCI, I believe the drop has to do with the news from Argentina. The PCI portfolio included Argentine debt. I'd be surprised if the action in PCI the past few days is a 'tell' about action in IOFIX.

+1.26%
Wow.
I suspect ... these lower rates have been great for RMBS.
Through July ...
https://www.screencast.com/t/CZ9CBwSJ

You missed our discussion last evening. It was the August effect. Be interesting to see today’s action considering how non agency RMBS PCI is getting hit today. PCI was the early tell last October before IOFIX had its worst daily hit ever. Albeit the backdrop then is the total opposite of now - rising rates vs falling rates.
Edit. My knowledge of CEFs such as PCI is about nil. I assume it’s recent decline is simply a squeezing out of its premium?

@catch22
I like 50/50.
But I remain heavy IOFIX.
One my best purchases. Helps make up for WBMIX, FAAFX, and AQRIX ... to name a few.

Yes, I did miss the discussion. Will look up. Before I posted, I searched for IOFIX and saw nothing new ... me just getting old. And yes again, let's hope history does repeat in this case! Good to see your name again Junkster. Hope all is well. c

+1.26%
Wow.
I suspect ... these lower rates have been great for RMBS.
Through July ...
https://www.screencast.com/t/CZ9CBwSJ

You missed our discussion last evening. It was the August effect. Be interesting to see today’s action considering how non agency RMBS PCI is getting hit today. PCI was the early tell last October before IOFIX had its worst daily hit ever. Albeit the backdrop then is the total opposite of now - rising rates vs falling rates.
Edit. My knowledge of CEFs such as PCI is about nil. I assume it’s recent decline is simply a squeezing out of its premium?

+1.26%
Wow.
I suspect ... these lower rates have been great for RMBS.
Through July ...
https://www.screencast.com/t/CZ9CBwSJ

Junkster - all in (or even 55%) in IOFIX is way over my head. But, I did get my small piece thanks to your writings. I owe you some hiking gear.

Hi @Junkster
I recall the August moves you mention with IOFIX.
Those of us who have been around long enough to know how our minds function with various situations have these moments indeed. I do my best to attempt to continue to adjust my quasi habits with investing.
I know from portfolio adjustments (where the monies are invested) that over time I find the results indicate that I am still learning and becoming better.
The downside is that too soon in the near future I/we will likely abandon self directed investments and place the majority of the money into a form of a balanced fund or a 50/50 split between equity and bonds to form our own balanced fund. Obviously, this is not a pure hands off; but I/we are attempting an unwind from the active role.
Habits are hard and will be hard to break when standing on the sidelines, noting what actions could have been taken.
I'm somewhat saddened by this thought as I write, but the clock hand of time won't slow for me.
Take care of yourself,
Catch