Floating Rate Funds ( Fixed Income )

The SAMBX Prospectus explains that they mostly invest in senior notes, (loans to commercial enterprises). In the event of bankruptcy, senior notes tend to be near the head of the creditor line. Therefore, while the fund might lose some principal if a note fails, they should not lose everything as tends to be the case with stocks. There are still tons of gotchas so this is a very small part of the overall portfolio, but it has its place. Let's look at two charts, the first is a ten year comparing SAMBX and a fund that is based on US Treasury TIPS, (inflation protected bonds), VIPSX, 2007 - 2014.

Now, let's look at just one year with the same two funds. SAMBX looks a lot better against VIPSX. My thesis is that people are still discounting the potential of inflation.

I use SAMBX for two reasons, to manage volatility so I can sleep at night and also as a hedge against inflation. Now it is not clear to me that wither SAMBX or VIPSX can actually be a hedge against inflation. However, if people believe that they are and start buying these funds, that should increase demand and drive the price higher. If I can get lucky and the price goes up 20% and inflation is at 5%, then these really help. Let's do one last chart, to illustrate the volatility management piece. The new color, yellow is SPY, my proxy for the S&P 500. VIPSX doesn't drop as much in the great recession because most people expected the US Government which issues the TIPS bonds VIPSX is based on to survive. But in the great recession, there was real concern that companies might fail, which was not good for either SAMBX or SPY.

The SAMBX NAV as of:

4/28/14 9.02 Well, we wanted something to manage volatility :)
3/1/13   9.02
3/8/13   9.04
3/19/13 9.05
4/20/13 9.08
5/1/13  9.09 Woo Hoo feel the engine roar :)
5/17/13 9.10
6/13/13 9.01 Hmmm, time to buy more?
6/26/13 8.97
7/21/13 9.04 Kinda wish I had moved on 6/26/13 :) Oh well, I am still working so there is only so much time to do investments right now.
7/23/13 9.05
1/6/14   9.06 In the past 6 months this hedge against inflation is up by 1%, but my expense ratio is .6, before taxes and trade fees in investment is up .4%, beats a checking account I suppose.  And there is that cute little three cent dividend. We are going to stay the course.
1/24/14 9.09 Been 2 tough days for Mr. Market, so far SAMBX does not appear to be high correlated with stocks and that is always nice.
4/3/14   9.06


1/8/14 9.08  The Chicago Tribune just ran a story on floating rate funds, they mention:

• FFRHX
• PRFRX

Lets run a comparison against SAMBX, Google cannot locate PRFRX, so we will focus on SAMBX and FFRHX.

As it is easy to see they are highly correlated. The spread at December 2013 is kind of interesting.; can't wait to see where it leads.

1/10/15 8.75
That is not what I was hoping for there are two holes in my thesis. This strategy was to reduce volatility in basket Cs. It is not like it is swinging wildly, but I was expecting slower change. And of course I was hoping it would go up not down. This still correlates with FFRHX. No action required.

2/12/14 9.08

11/29/13 SAMBX is still at 9.05, but I am happy, it adds stability to the portfolio and gives me some protection against inflation. Realize there are NO signs of impending inflation, but when I can build a shield at a bargain, what is not to like.

Update 5/2/14 Fascinating article on the topic from Oregonlive.com.
Update 4/20/13 I found this article from a year ago and he mentions PRFLX and EVBLX.
Return for 1 year, expense
PRFRX +2.00%     0.85%
EVBLX +2.25%    1.02% with a front load of 2.25% Yikes!
SAMBX +2.60%   0.62%
This March 2013 WSJ article reminds us there are risks ( thanks ) but people are considering this as a hedge against inflation (thanks again :). And they mention:
OOSAX  +2.18%   1.06% with a front load of 3.50%
RPIFX    +2.08%    .55% (sounds great, but the minimum investment is a million dollars, even if I had that to spend that would be a lot of eggs in one basket )
NOTE: return for the year is NOT adjusted for dividends, or it would sound higher.

How we got started with this 3/2/13

I was ending a phone call with Sean Fowler ( Edward Jones Auburn WA) and he mentioned that I should look into a fixed rate fund as a hedge against inflation.

Thesis

This is a type of fixed income that can serve as a hedge against inflation, it is very common to see these rates float 2% ( or even more ) above the T-bill rate. They also have the potential to smooth out a portfolio. Take a look at this risk table from Google Finance dated March 8, 2013 for one fund SAMBX:

A negative Beta and a fairly high Alpha with an attractive Sharpe ratio is what I need a bit of right now. To be sure with a Beta of -0.24 it is very unlikely I will see gains ( or losses) of 5% in a single day, but it makes sense to me to try to build an overall portfolio that smoothes out some of the highs and lows. Why?

Mr. Market is Bi-Polar (Sidebar)

Just three months ago, we were being told the world is ending, not just the Mayan calendar ( it tells you something about human nature that this was the number one question people were asking NASA), but that we would all fall off the fiscal cliff in December 2012 and have a recession.


With apologies to Men in Black for taking them out of context:
Kay: There's always an Arquillian Battle Cruiser, or a Corillian Death Ray, or an intergalactic plague that is about to wipe out all life on this miserable little planet, and the only way these people can get on with their happy lives is that they DO NOT KNOW ABOUT IT!

In our case as retail investors trying to set up a retirement, we can know about it, but we can't let it get to us. Last week as the Dow Jones set new records, the doomspeakers were already lining up. Are they right, are they wrong? Heck if I know, but I know that investing from a spirit of fear leads to poverty fast. And yet I am a human being, I feel fear, I have intuition trying to help me invest, so starting to think about smoothing out the portfolio, seems to be a good plan. Less emotional input.

Back to Floating Rate Funds Thesis

They loan corporations money and require a premium on the interest. The interest rate floats based on some metric like the Libor.  Obviously, the performance of the fund is impacted by interest rates and Ben Bernanke has kept them as low as possible for a while. Therefore, the potential of these funds to go up when interest rates go up is fairly high.

There are a number of these funds, many are very expensive ( high cost expense ratio, the industry average is 1.21%), some are only available if you are invested in some sort of wealth management type of broker. Most are traded over the counter and you may be limited  in when you can retrieve your money, once a quarter, 15th of the month, that sort of thing, so this needs to be in the long term portfolio type of thinking.

Research

The clearest explanation I have found is this Investment U article. It is well balanced and talks about the pros and cons. I have been looking for a couple of days and doing my homework and have decided that I would like to open a position in a floating rate fund.
I was down to five semi-finalists today: SAMBX, FLYRX, AFRIX, CSHIX and HFRZX. In the end I selected SAMBX, it is not the top performer in 2012, but the expense is 0.62% which is about half of the industry average.

Ss Long Term Holdings

10/30/15 Moving all assets to Vanguard In-Kind transfer and closing the basket. Going to keep the LinkedIn.

5/12/14 LNKD 20@140.00 L 148.69

2/13/14 Trying to grow this basket. 20 CTSH L@98 LC 98.45, very good chance this will hit. Now for the crazy move. I try to keep a bit of cash in some of the baskets in case of a "bluebird", a stock really dropping that I have already researched giving me an unexpected opportunity. But I am busy, I can't work the market all day, I have to work, so I use limits, this one will only hit if things really go my way:
20 TSLA L@150 LC 195.32

2/12/14 LinkedIn dropped today, added 10@Market 192.56
Update 2/13/14 Order closed, but we paid 192.92 (risk of after hours trading) LC 192.91

12/2/13 Cognizant Technology (CTSH). Thesis, the harder it gets to implement the health care exchanges, the more you turn to professionals. While implementing the IT side of health care is not their only strength, this consultancy has street creds in the domain. Almost zero debt. Limit, 25@93.00 last close was 93.89.

1/11/13 LinkedIn (LNKD). Every professional uses LinkedIn, but my account is free so how do they make money. They are also in the job search business. Set a limit@116.00 for ten shares to add to my position.
Update February 4 close 123.30

Thesis Buy and Hold Great Companies

In the Ts basket, when an equity appreciates 20% or more and I have reached the one year birthday ( wonder if that is still the tax law post fiscal cliff? ), I often sell it and use the proceeds to buy a CD or Municipal bond. Even though the intrest is low, I am using money that appreciated 20%. I have been keeping the dates fairly short ( 2 - 5 years ), so hopefully fixed income will be a better investment as they come due.

In the Ss basket, the idea is to pick companies that I want to hold for a decade or more through bull and bear markets. Two examples are Intel and IBM, we bought IBM when we were first married so we have held it 25 years. I sold a bit at one point, but have also added to my position on dips.

Fool Funds

Thesis: I do not normally favor mutual funds, but this is a long term investment. I am starting to prefer Vanguard for mutual funds and ETFs, but I have been in each of these since they started.


7/23/13 FOOLX, the Motley Fool Independence Fund is up 22% for the year. NAV is 18.10

7/23/13 TMFGX, the Motley Fool Great America Fund is up over 33% for the year. NAV is 15.90

7/23/13 TMFEX, the Motley Fool Epic Voyage Fund is up 21% for the year. NAV is 12.04 and that is impressive since international stocks have been pounded this year. This could be an opportunity for some additional funding.

Fk basket for value investing

11/29/13 Against my better judgement, I sold half of my Omega Protein ( OME), 500 shares, market, last closed at 13.92. Am well past the 1 year capital gains. Thesis on the sale,  my OME holdings have been underwater the majority of the time I have held them, so this has been so wonderful to see a significant profit. The fishing world is uncertain at best. I am keeping a position open, some analysts predict they can reach 14.5 in 2014.

7/23/13 Needless to say finding value opportunities in the bull market of July 2013 is challenging. My thesis is that it is not a crime to keep money on the sidelines when you can't find a bargain for your value basket.

7/23/13 Sold part of my position in Alamo Group (ALG), did it as  a 3% Stop Loss, so if/when it hits 41 something or another the trade should execute.

Ts Mutual Fund Red Green and spot orders 2013

I am not an expert investor. This blog is my trading notebook for myself and my family though you are welcome to any of the research. Please do your own research and make your own decisions.

Thesis

This is the only basket that I trade actively and when I retire I will probably give this up and cash out; all other baskets are long buy and hold. This is also my "incubator" for future core stocks that will be long term positions.

My thesis for red/green analysis is that if a stock is very far gone in the negative or red direction ( MAKO ) there isn't much to do , but sell or hold on hoping the company turns around. If a stock is very positive, hopefully I saw that trend and increased my holding and at some point I will profit take ( one of the rules of this basket). So the action is really around the middle, stocks that are slightly positive and negative. Past Ts Red Green reports confirm they change places.

Rules of the basket:
(Last updated April 28, 2013)

• No big bets, lots of small orders which means incurring a 0.5% -1% overhead per transaction for the trading fee
• Check on this account often, this is by far the most dynamic account you manage
• Preference is given to companies that are not debt ridden using Google Finance debt to assets ratio  < 20 ( and also being mindful of the debt to equity)
• If you have a high flyer that starts to drop it is OK to profit take and protect principle, you can always buy it back when it drops. If it keeps going up after you sell, oh well, there's too many fish in the sea
• During bull markets, be willing to profit take on companies that appreciate more than 20% and store that money in a safer instrument
• During recessions, corrections and bear markets be willing to open and add to positions
• It is real retirement savings you are spending so research the company even if you have to rely on industry analysts
• Remember the rule of unrealized loss. If you believe it is a soundly run company with good product, even if the market drives it way down, hang on. MAKO was a fairly big bet and it is down 70% or so, but my thesis is we are going to keep needing surgical robots.
• Use limit orders whenever possible, they do not all have to hit

8/2/13 Whole Foods (WFM) 54.58 and Proctor Gamble (PG) 80.96, Medtronic (MBT) 54.94 dropped a bit, added ten shares of each to my position. Opened a position with Apogee (APOG), 45 shares market, 27.03.

8/1/13 Polypore (PP0)
This is still negative for me and is very volatile, but added 15 shares@market, 43.44

7/24/13 ISRG
Robotic surgery is the future so Intuitive, a market leader, should do well. However, they missed earnings and have really dropped. I had this stock before, but did some profit taking with it. Trying to reopen a position with 10 shares on a limit order or 380.00, currently it is trading at 386.89.
8/1/13 395.26

7/23/13 Reds, top performing, descending order
                30  90  180  1yr  5yr
MCD         -   -      4     3    3
FPX          2   2     2     1    2
SSL          1   1     3     2    -
COH        3   3     1     4     1
BRCM     -   -      -      5     4

7/23/13 Greens, lowest performing, descending order
                30  90  180  1yr  5yr
CTXS       2    -     -      -     1
CORR      3    2     1     -      -
INTU       1    -      -     1     2
TEVA      4    1     2     -     -
QCOM     -     -     -     2     3

CORR L@7.50 70 shares last close 7.63
CTXS  L@64.00 10 shares last close 66.07

7/21/13 Athena Health Care was up 22% and it dropped 4.00 a share, added ten shares to my position. Opening a small position on an IPO ETF (FPX) 25 shares at market.

6/26/13 Silver (SLV ETF) just dropped 5%. Opening a small position, 30 shares@ market, 50 shares limit at 17.25.
7/21/13 18.88 Missed the boat, sometimes a limit order means not striking paydirt. Oh well. I do have 30 shares that I purchased at market. Beats nothing.

5/17/13 Getting sketchy, market feels overpriced
ENH 15 Limit@48.5
IRBT 20 Limit@33.0
PANW 10@ 53.0

5/1/13 Cummins (CMI) got trashed today, 6% drop. Bought 5 shares at market.
7/23/13 117.67

4/30/13 Not one single limit hit today, the market was definitely trending up. At least when I look at the baskets I see green everywhere and get to congratulate myself on how smart I am (yes, I am kidding, tomorrow it might be mostly red and I will be dumb). Do need to keep a close eye on Liquidity Services (LQDT), I am still up 15%.
7/23/13 28.94 down 22% in 30 days.

4/27/13
1) Lowest greens, best to lowest
                 30  90  180  1yr  5yr
RAVN       -     1   1      2    1
NOV         -     -    -      -     -
CORR       -     3   -      -      -
VIVO       -      -   -      -      -
ERIE       1      2   2     1     2

Intuition would say that the NOV and VIVO are not the place to add money to, but the S&P Fair Value for NOV is a 5 and the Schwab rating is a B, where Erie is a 1 C and RAVN is a 1+ D. Limit order to accumulate more NOV.

2) Next best performing flight, best to lowest
ATHN      -      2   1   1      1    
MCD       1      1   2   4      3
WFM      2      -    -    3      2
CHEOY   -      -   -     -      4
FDX        -      -    3    2     -

ATHN looks good and it should, it has a P/E of 188.62. Thesis: this is like a dating service for patients and health care providers. As Obamacare is rolled out they are well positioned. But to win one needs the right stock, but also at the right price. It would only be smart to add to this position on a dip. They are a D1. Pass.

McDonalds is a steady Eddie, but with their debt level, I am not inclined to add to the position right now. They are a C 2, S&P says buy. Pass.

WFM is a D 2, I only have a small position open to look at them. Pass.

CHEOY is a long term play. Thesis: hearing aids is a good business to be in. Pass.

FDX is also in the eCommerce basket (Sk). The worse things are for the USPS, the better UPS and FedEx are likely to do.

3) Best performing reds, best to lowest
                 30  90  180  1yr  5yr %increase for 1 year
QCOM      -     -     3     -      4    (4)
BCPC       -     1     1     1      1    47
PANW      -     -     -      2      2      1
COH         1    2     4     -       3   (22)
IBKR        -    3     2     -       -    (3.5)

Coach of course got that pop based on their earnings.

I bought Balchem in July 2011 and it tanked, but it is up 47% for the year. Schwab rates it a B, S&P Fair Value is a 2-. Another case of the right stock, but needs to be the right price. This is the result of my work so far today, note VIVO got downgraded to 19.00

4) Genworth (GNW). I started a research workup on this stock for basket Ck (dividends), only to realize the dividend party ended years ago. Then I thought about a small position in Ts. After a couple hours I am conflicted. No action at this time.

5) RKUS Rukus. Thesis: this is a better wireless mousetrap. They are essentially the BOSE of the wireless world AND they are down something like 13% in past 30 days. Opening a position with 40 market and also 30 L@19 and 50 L@18.5.

6) Seattle Genomics (SGEN). Thesis: with an apparently effective anti-cancer drug in the field and more in clinical trials and no debt and lots of cross agreements, they could do very well. They last closed at 37.38. 30 Limit@37.30, 40 Limit@37.00, 40 Limit@36.75.

4/25/13 Not sure why, but we had some drops, so I am doing two market, two limit buying on dips:

4/23/13

1) ATHN. Opened a possible position on Athena Health. My thesis is that as Obamacare continues along, the complexity will push all smaller providers to use cloud type billing. 20 shares Limit@90.

2) COH. Coach has been a disappointment in a number of ways. I am down 16% since I opened the position, luckily it is a very small tracking type position. However, this article suggests a number of people are selling puts ahead of the earnings report. It appears that someone thinks the stock is about to rise. I am not sure that I agree, partly because they are modifying the strategy that got them where they are and partly because a strike of 52.50 is beyond my ability so see happening, but once again, the Wall Street guys have IBM Z series mainframes and I have Google and a Mac. Decision: no action.

3) WFC. Wells Fargo is experimenting with a new style branch according to this article. Looks a lot like an Apple store to me. Let's add 25 shares @Market.

4/20/13
1) Open orders

2) Recent activity

3) Lowest performing greens best to worst

                  5   30  90  180  1yr  5yr

CTXS         -    -    -     3

MCD         -     1   1     2

CMI          -      -   -     1

WFM         -     2   -     -

FDX          -     -    -     4

Decision: MCD Limit buy 10@94.00 Last close 99.92

4) Next higher performing greens best to worst

                  5   30  90  180  1yr  5yr

ORCL        -    -    -     3      2     3

ROLL        -    -    -     4      3     4

ULTI         -    -    -     -       1     1

MELI        -    -    1     2      -      2

HURC       -    -    -     1      -      -

Decision: Profit take ULTI, close position, but put it in the watch list, I like the fact it does not correlate strongly with the other four. Action: find another equity to replace it. Hold the line on HURC.

4/16/13 Market dropped today possibly due to the Boston Marathon bomb. Kathy and I have been praying for the injured and those grieving the loss of a loved one. But we are adding to some positions:

Lowest performing greens:
                  5   30  90
HURC        -    -    -
NOV          -    -    -
NUAN       2   1    -
WFM         1   -    -
IRBT         -    2   1

Decision: Add to my NOV position? Dunno, it seems incredibly stupid to me, but it is a small bet ( 15 shares) and it dropped like a rock today and my thesis remains that it is a great company poised to do well and if you buy on dips in an aging bull market you have to accept a few drops.

4/3/13
1) Top performing greens ( excludes TSRYY)
                                      4/27/13      30   90
                  5   30  90  180  1yr  5yr
Z                -    1    1    2     1     2
DIS            2    4    4    4     2     1
OII             -    5    3    3     5     3
MDT          3   3    5    5     4     4
BSX           1   2    2    1     3     5
OII dropped 3.76% today 10@Market last close was 63.02
BSX (B 3) and MDT (B 4) have a little more debt that I like to see, going to sleep on that one.
4/27/13 Speaking of medical device companies, Spectranetics (SPNC) is going to sell some stock, it will be interesting to see what impact that has. Not that debt is the only factor, but they have less debt than most of the players in this space.

2) Green Analysis, best to least heat 1
NOV          -    2    -     -      -    2
FDX          -    -    2     1     2    4
HURC       -    -    1     2     -     -
CHEOY    -   -     -      -      1    3
NUAN      1  1     -     -       -    1
NUAN Limit 30@20.75 last close 21.06

3) Next lower tier (RDWR is a slight red)
BRCM    -    -     -      -       -    4
MCD      -    3    2      1      1    3
IRBT     1    1    1      2      -     5
LQDT    -   -     -       -       -     1
RDWR   -   2    3      3      2     2
RDWR Limit 20@37.20
IRBT Limit 30@24.50
MCD Market 10 last close 99.25

4) Top (best performing) reds
INTU    -   -     3       1      1     2
RAVN  -   1     1       2      2     3
WFM    -   -     -       -       4     1
PANW  -   -     4      -        3    4
TEVA   -   2    2      -        -     -
RAVN Limit 20@31.20

4/1/13 NUAN Deja Vu! I researched this company a year and a half ago, my thesis was that people were going to want it because it is faster than typing. My wife prefers voice search on mobile to using the itty bitty keyboard. And I lost money. And now I am thinking about it again. It has a PE of 37 AND a debt ratio of 36.5. I do not have a basket that I can add this to under the rules of any of my baskets, but I do have three exceptions I can use in Ts, my mutual fund.
Decision: Commit red flag #1 of 2013. Very small open position, 50@Market, last close was 20.18, hopefully this is not my April Fools Joke on myself.

Upcoming Global Macro Forces ( 3 to 5 years)

Jack, from Merrill Lynch sent me a document to read saying it was written by one of the brightest analysts out there. I did my best to get through it, but it was slow slogging at best.

This is my best effort to write down my interpretation of what they said.

Concept 1 is the idea of a three speed world. China and other successful emerging economies are high speed. America, at 2% growth is an example of medium speed. Japan ( if Abenomics is not able to pull them out of stagflation) and some of the poorer European countries are low speed.

Concept 2 is the observation of very active central banks. I have noticed this myself and wondered how it would all work out. The report refers to the central bank activity as experimental. It does say it has been beneficial for banks, but less clear for investors in the future. The observation is made multiple times that a result of central bank activity is that the price of certain investments may not be tied to the true reality of the market ( I think that means potential for bubble, but they did not say that). In order not to get totally blown away when the qualitative easing free ride ends, make sure to carefully consider the fundamentals of any investments. The authors talk about Whatever It Takes (WIT), which is what the Fed did to avoid disaster as described in Too Big To Fail and toning it down to avoid Moral Hazard ( doing whatever you can to save your country at the expense of the global economy).
6/20/13 The Fed, Ben Bernanke, gave a speech about winding down quantitative easing and caused the markets to drop a bit over 2% the next day.

Concept 3 is the branch. The author of the report believes we are headed towards a branch, or fork in the road. Either the system heals itself, focuses on deleveraging and political stability ( come on US Congress, work together), or we reach a period of even slower growth which would be devastating to the economies that are already in trouble such as certain countries in Europe. Some countries are much closer to this branch than others, the ones already in trouble (Spain, Portugal, Greece, etc).

Concept 4, this is the scary one, unless we can increase growth, haircuts are almost certain. To quote Wikipedia, "Private sector involvement (PSI) refers to the participation of the private sector in projects of the government. It has come mostly to mean financial affairs, and specifically the participation of the private sector in the write downs of sovereign debt in instances of haircut." Haircuts are bad things in this context, if you have 100k invested and there is a write down, you may end up with 60k or some such.

Concept 5 was Zombification. Be warned that different people use the word Zombie in economics differently. Yesterday, the Bank of Canada warned of Zombie banks, banks and companies that really are not alive, but are able to survive in the current era due to central bank policy of very low interest rates. The problem is these are consuming these resources that are meant to restart the Canadian economy and when reality emerges will probably fail at that time. This makes me feel very good about our strategy of avoiding buying stock in companies that have a lot of debt. The document seems to use Zombification a bit differently, but if they define exactly what they mean, I missed it.
7/10/13 Edward Hadas argues that an aging population is the major driver of Zombification in a blog post.

There were several recommendations, here is one that jumped out at me.  "Look more intensely for opportunities away from the central bank wave." This is one of those easily said, but hard to execute pieces of advice. I smiled because the document implies they have people on staff that can do exactly that and if so, I am happy for them. I am guessing the secret is to look for other macro trends such as:
- Aging population in USA, look for health care wins, electric wheel chairs, home elevators, nursing homes etc.
- Declining Caucasion influence in USA, look for international restaurant chains, Latin, Indian, Asian.
- Technology game changers such as 3D printing, surgical robots, etc.

Another suggestion is to increase defensive positioning. I think this is the idea that people are going to have to buy soap and shampoo regardless of how the economy does. That did not seem to be a super workable strategy in the great recession. I can see moving my portfolio a percent or two to defensive, mostly by increasing mega-cap stock positions and either holding the line or profit taking on some small cap and medium cap positions. On the other hand, if what they mean by defensive is putting some cash on the sidelines, I am all in. The document says, "Do not give up liquidity cheaply." Amen, I suggested to Hunter, Harry and Trey, to put some money on the sidelines and keep some powder dry about six months ago. Granted, the market continued to go up, but there should be some buying opportunities in the months ahead.

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.