Ak - Bond Funds become individual Munis

I am not an expert investor. This is my trading notebook for myself and close family, but you are welcome to any of my research. All I ask is that you do your own research and make your own decisions.

6/24/13 According to CNBC, there are now record outflows from bond funds to the tune of 40 billion.  If we use DODIX as a proxy:
7/23/13 the NAV was 13.57, on 4/10/13 it was 13.88
ACTION: set a calendar alert to reread this in six months, bond funds may become pretty cheap.

5/1/13 This Lipper report does not make sense to me. More money is flowing into bond funds than equities and exiting large caps? Thesis: the baby boomers are starting to retire and their Edward Jones (no insult intended, I have an EJ guy helping me with part of my portfolio) advisors are putting them into (expensive) fixed income bond funds. Let's just pick one of my former holdings to sample:
DODIX is up 2.12% for the year. Sounds good, but why? Some part of that has to be the inflows, according to Lipper, of 42.3 Billion in the month of March alone. Now here is the crazy thing. If we go to the fixed income section of our online trading site, we see -- utter crap --. If I can get 1.5% Yield to Maturity on a 3 year horizon the skies open up and the angels start singing. When DODIX ( or any other bond fund) bonds get called or mature, we can say bye bye to that sweet 5 -7% interest rate and have to lock in real money at rates that frankly will not keep up with inflation.

Repeat not an expert, but I have been an analyst of every sort for most of my working life. I suspect a bond fund bubble (bofunble). And if I am right, who gets hurt? Hard working folks that put in 65 years and listened to the advice of their financial analyst and are counting on that investment for monthly income.

4/20/13 Feeling pretty good about getting out of bond funds and into short time horizon Municipal bonds. There is more risk in some sense ( inflation, default etc), but also more return. If I had stayed in the bond funds, this is what it would look like in per cent gains and losses:
                  30       90        180 days
BKLN       (.16)    (.33)      .72
TIP           (.33)    (.09)      (.21)
DODIX     (.07)    (.22)      (.14)
FHIGX      .89      (.44)       .44
PRFSX      .18       .18         0
USSTX       0         0          (.09)

Update March 1, 2013
About halfway through taking the money from the bond funds and buying individual Municipal bonds in basket Ak. Looking for stable outlooks, A or better, short horizon max 2016. The crazy thing is that two of the bonds I tried to buy sold out from under me, so someone is also trying to buy bonds.

I read a Zacks article that recommends four international bond funds: FNMIX | PREMX | JEMDX | GAMDX | REBAX. Not personally ready to do that.

GTIP 53.89 (Watching this international inflation sensitive ETF closely)


Update February 24, 2013

Well, it is starting to happen. Still in the green for the entire basket, but in the past 30 days, things are headed South. Closed all positions except GTIP and probably want to set some sort of trailing stop for that.

Closed ETFs include: BKLN and TIP. Closed Mutual Funds include: DODIX, FHIGX, PRFSX, USSTX. Over the next few weeks will replace these investments with Municipal bonds.

February 4, 2013

I am continuing to watch the bond fund basket closely. I closed my position in HYLD in Ts today at 50.68 so all bond funds are now in Ak basket. The two best performers for 5, 30, and 90 days are GTIP and TIP which tells me someone believes we are going to face inflation. GTIP ( global, inflation protection ) is by far the best performer. But as I was doing my research I noticed something, GTIP does not move exactly with the market. For that reason I think I want to add a bit to the position.

Decision: purchase GTIP in two tranches. Half @market, half Limit@54.50, GTIP closed at 54.76 today.

GTIP (Blue) is not highly correlated with S&P or Dow Jones

The third best performer in the basket is FHIGX. This is a municipal long bond fund. Obviously this is tax advantaged. Two ETFs similar to this are TFI and MLN. MLN is fascinating to me, it is almost as if it was leveraged, it has much bigger swings than the other equities in this basket. But the whole point of Ak basket is to be calmer than the general market.
Decision: No more changes for tonight.

January 10, 2013

Closed position on PCY while I am still ahead.

January 9, 2013

Continuing to monitor these closely. I hold four mutual funds:
Ticker     Focus     Expense   30day   90day  
DODIX    Bond A+    .4           1
FHIGX    Bond A+     .46                     1
PRFSX   Muni Int      .5
USSTX   Muni Int      .33

All 4 have dropped over the past 30 days. In particular I am concerned about FHIGX, I added to this position April 9, 2012 and it is my largest mutual fund holding. I am up 9.81%, but that could erode quickly. If I do liquidate, two portfolio candidates when the time is right are FTABX and MLN. Here are similar mutual funds with a tax free municipal focus to FHIGX:

Ticker     Expense   30 90 180 365 5yr
FHIBX       .46          1                      3
FTABX      .25          2   1     1    1    2
VWLTX     .20                2    2     2
ACLVX      .48                      2          1

January 4, 2013

This is starting to look very hard to solve. At some point in the future interest rates will go up. When that happens bonds and bond funds will be under pressure. That point is not tomorrow, but apparently that fact is beginning to put pressure on bond funds. My thesis is this is not a really good place to be right now.

Worse, bond prices are sucky right now. So as bond funds add additional funds they tend to perform worse because their bonds perform worse. No action today, but need to review everywhere I hold bond funds. They are mostly in basket Ak, but there is another one, MWTRX, in the As basket. This is being used for sector and international ETFs, so I am going to sell it partly because I am afraid I will not watch it properly and partly because I would like to tidy up the basket.

Some trading ideas from my research, all 4 star Morningstar:

• BABS, based on build America funds so it is taxable, seems to have a few things going for it.
• MLN, long municipals
• SMB, short municipals

Decision: close position on MWTRX in basket As. Use that money to buy a short term municipal bond. Monitor basket Ak closely and look for opportunities to buy short term municipal bonds and begin to close most positions. Two to think about keeping are TIP and GTIP, if interest rates are going to go up, they may do well, though a Forbes blog suggests TIP is now in an oversold condition.

Now, how to get back into the game when the time is right. Probably the best idea is to look for a newly minted closed end fund. Ideally, I could be one of the preferreds ( when they create a closed end fund there is an IPO and it would be ideal to buy in at that point).

What about the limit on JNK in Ak? I think I will leave it and simply make it more aggressive 50 JNK Limit@40.00.

January 3, 2013


Decision close position on MBDFX, think about a replacement ETF. Candidates to replace include MBB, LAG, IEI, SHY, TLH, BSV. There is no clear winner here, but plenty of losers, it may be time to move to cash in this asset class for a while. Continuing to search, XMPT, IGU, HYMB, UJB. UJB is up over 20% for the year and IGU has not been doing so poorly either.
NOTE: I hold LAG

UJB is a leveraged ETF, those make it hard to sleep at night. It's gross expense ratio is 3.02%, net is .95% so it is rather expensive. It closed on 1/3/2013 at 51.47. If I do it I will buy on a dip and only hold a small position.

IGU is also leveraged with a similar expense ratio. It closed on 1/3/2013 at 55.45. Uggg.

So, we keep researching. This is real money at stake. What about lower rated, higher yield, higher risk based assets?

HYG            3
JNK     2     1     1     1
PHB                         2
HYS     1     2           3
BSJU

JNK has a .4% net expense, 12 billion in assets, it is sort of an index fund. 

Decision: close position on LAG, we have a microscopic loss. Open a limit order position on JNK, 50@40.50.

This will have the Ak basket with the following:
JNK ( if limit hits)
BKLN
PCY
GTIP
TIP

DODIX
FHIGX
PRFSX
USSTX

And entirely too much money sitting on the sidelines, but best I can do right now.

December 22, 2012
              30    90    180   365
AGG       5      5      5      5
BKLN     2      4      3      4
PCY        3      2      1      1
GTIP       1      1      2      2
TIP         4       3      4      3

• iShares Barclays Aggregate Bond Fund ETF (AGG) is negative for 30 day period and is now negative overall. It is the lowest performer of the ETFs in this basket.  Decision, sell and look for replacement. Candidates include: BND, LAG, BIV, VMBS, LAG seems to be the most consistent. Decision, open a small position, 50@market. Put on Google Calendar to review. 
• iShares Global Inflation-Linked Bond Fund (GTIP) is the best performer over 30 and 90 days, Decision, let's add to the position 25 shares@market.
• Update January 1, 2013 GTIP is still the best performer and with the House of Representatives not accepting the Fiscal Cliff deal, the odds are the market will go down, let's add 25 shares with a limit of 53.5
• Why market instead of limit; these are bond funds, they tend to be fairly steady state, at least that is what I am hoping.

MUTUAL FUNDS:

              30    90    180   365

DODIX    3      5      1

FHIGX    5      1      2

MBDFX   1      2      1

PRFSX    4      4      5

USSTX    2      3      4

VIPSX     6      6      6

• Closing position on VIPSX
• Reducing postion on PRFSX, but want to keep some skin in the game to monitor
• Increasing position on MBDFX

Update: January 1, 2013, it may be time to reduce exposure to bond funds, they are only up because people have been looking for safety. I will think about this over dinner. In the past 30 days, MBDFX has dropped 2% which is a lot for a bond fund.