What does "Front-end load portfolio" mean

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nickfrank
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What does "Front-end load portfolio" mean

Post by nickfrank »

In the latest PIMCO Investment outlook Bill Gross states that we should position bonds to be heavily front-end maturity loaded along with credit volatility and curve steepening positions.
Will someone please translate this for me? It may help with our concerns.
We currently have a 30/70 portfolio with most of our bond investments in the total bond market index fund and inflation protected bond fund (med. duration). It was fortunate for us that stocks had a good return in 2013 for our RMD. We need to have some bond or cash position for future RMD's so we don't have to sell low.
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nickfrank
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Re: What does "Front-end load portfolio" mean

Post by nickfrank »

Please respond
dbr
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Re: What does "Front-end load portfolio" mean

Post by dbr »

nickfrank wrote:In the latest PIMCO Investment outlook Bill Gross states that we should position bonds to be heavily front-end maturity loaded along with credit volatility and curve steepening positions.
Will someone please translate this for me? It may help with our concerns.
We currently have a 30/70 portfolio with most of our bond investments in the total bond market index fund and inflation protected bond fund (med. duration). It was fortunate for us that stocks had a good return in 2013 for our RMD. We need to have some bond or cash position for future RMD's so we don't have to sell low.
I think he means to hold the larger part of the bond asset in short durations and also at those point of the yield curve where return increase sharply for increases in duration.

I don't think that is something an investor with a good, simple plan needs to worry about.

I don't understand the concern about RMD. If you are 30/70, you have some bonds. I don't know what the scenario would be where you would sell stocks low. Suppose stocks crashed to half their value. Your asset allocation would then be 30 units in bonds and 35 in stocks or percent-wise 46/54. Say your RMD is 4% of those assets. Sell the 4% from bonds and your asset allocation becomes 42 of those units in bonds and 54 in stocks or percent-wise 44/56. Now you sell 14% of your assets from bonds and buy stocks and you are back at 30/70 with no sales of stocks.
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StormShadow
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Re: What does "Front-end load portfolio" mean

Post by StormShadow »

What does your prospectus say? All of your "front load" information should be in there.

Are you using a financial planner? If so, you need to clarify with them what they mean by "front end load portfolio".
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nickfrank
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Re: What does "Front-end load portfolio" mean

Post by nickfrank »

Storm Shadow
I am not referring to loads on purchase of mutual funds.
dbr
I am concerned about having to sell BOND FUNDS when they are low.
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kenyan
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Re: What does "Front-end load portfolio" mean

Post by kenyan »

Bill Gross's 2013 predictions:

"2013 Fearless Forecasts: 1) Stocks & bonds return less than 5%. 2)Unemployment stays at 7.5% or higher 3) Gold goes up…"

1a) Terribly, awfully wrong unless we have a major crash in the next 2.5 weeks. Stocks are up 30% on the year.
1b) Got this one right. Bonds are flat or even down.

2) Wrong

3) Dead wrong. Gold is down 25% on the year.


Bill Gross's 2012 predictions:

2-5 percent return on stocks, bonds, and commodities.

1) Wrong. Stocks earned 16-17%.

2) Partial credit? TBM was within this range, but Gross's flagship PTTRX earned 10%, and Vanguard TIPS 7%.

3) Not sure how best to judge this, but if we go back to gold, it was up about 6%. Prediction wasn't too bad.

Bill Gross's major 2011 prediction: Super-bearish on Treasuries.

Caused his fund to lag badly in a good year for bonds. Vanguard Intermediate Bond was up over 11%, PTTRX up only 4%.

Bill Gross obviously knows how to run a bond fund, but I wouldn't invest based upon his predictions.
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Re: What does "Front-end load portfolio" mean

Post by roymeo »

nickfrank wrote:I am concerned about having to sell BOND FUNDS when they are low.
How low would bonds need to drop before you would be concerned/what sort of drop are you willing to take?

You know when stock funds move the amount that are called extreme in bond funds, no one even notices, right?

https://www.google.com/finance?chdnp=1& ... 4j8iQKVqAE
This charts out investor shares of Vanguards S&P 500 (VFINX), Total Bond (VTBFX), and Long-Term Bond (VBLTX) which admittedly no one seems to be recommending these days.
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Re: What does "Front-end load portfolio" mean

Post by nisiprius »

I think nickfrank is referring to:
On the Wings of an Eagle. It closes:
1) Be confident in the “PIMCO effect,” as Jack Bogle calls it.

2) Look for constant policy rates until at least 2016. Front-end load portfolios. Don’t fight central banks, but be afraid.

3) Global economies and their artificially priced markets are increasingly at risk, but the unwinding may occur gradually. Think [image of eagles' wings]!
Earlier, this seems to be what he is talking about:
Our primary thrust has been to focus on what we are most (although not totally) confident about, that the Fed will hold policy rates stable until 2016 or beyond. While this and its conjoined policy of QE may have only redistributed wealth as opposed to creating it (picking savers’ pockets while recapitalizing banks and the wealthiest 1% of our population), it is a policy that a Janet Yellen Fed seems determined to pursue. The taper will lead to the elimination of QE at some point in 2014, but the 25 basis point policy rate will continue until 6.5% unemployment and 2.0% inflation at a minimum have been achieved. If so, front-end Treasury, corporate and mortgage positions should provide low but attractively defensive returns. We have positioned our bond wars portfolio – heavily front-end maturity loaded along with credit, volatility and curve steepening positions, with the aim of outperforming Vanguard as well as many other active managers.
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FNK
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Re: What does "Front-end load portfolio" mean

Post by FNK »

English translation as requested:

If you are very concerned about rising interest rates dropping your bond values, shift some of your bonds into the Short-Term Bond Index Fund or even Money Market. 5-20% of your portfolio would be a reasonable target.

Do understand the ramifications of this move.

Pros:

When interest rates increase by 1%, the value of Total Bond Market drops by 5+%, the Short Term Bond Market drops by 2.5+%, and Money Market tries to not move at all.

Cons:

You realize gains, although that's probably not an issue in a tax-advantaged account.

You go for lower interest. Remember that the value may drop, but the dividends remain the same.

I would not do anything if I were you. If bonds go down, stocks will probably stay up and you'll be selling them high.
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Re: What does "Front-end load portfolio" mean

Post by pkcrafter »

Nickfrank wrote: Will someone please translate this for me? It may help with our concerns.
Pimco's prescription is to front-end load portfolios, meaning to focus on bonds that mature earlier.

"Front-end Treasury, corporate and mortgage positions should provide low but attractively defensive returns," Gross wrote. "We have positioned our bond wars portfolio—heavily front-end maturity loaded along with credit, volatility and curve steepening positions, with the aim of outperforming Vanguard as well as many other active managers."


http://www.cnbc.com/id/101242791


It looks like Gross is out to beat Vanguard, which has recently stolen the crown as largest bond fund.
(December 4, 2013) — As the PIMCO Total Return Fund lost its title as the world’s largest bond fund to Vanguard last month, its Founder and co-CIO Bill Gross stated he has a plan for a comeback.

According to Morningstar, the fund suffered its seventh consecutive month of outflows in November. Down almost 3.5% this year, the fund saw a $3.7 billion pull out this month leaving $244 billion in total assets under management and allowing the $251 billion Vanguard Total Stock Market Index fund to steal the crown.

“We have positioned our bond wars portfolio—heavily front-end maturity loaded along with credit, volatility and curve steepening positions, with the aim of outperforming Vanguard as well as many other active managers,” Gross said in his December investment outlook.
http://www.ai-cio.com/channel/NEWSMAKER ... guard.html

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Re: What does "Front-end load portfolio" mean

Post by JW-Retired »

dbr wrote:
nickfrank wrote:In the latest PIMCO Investment outlook Bill Gross states that we should position bonds to be heavily front-end maturity loaded along with credit volatility and curve steepening positions.
Will someone please translate this for me? It may help with our concerns.
We currently have a 30/70 portfolio with most of our bond investments in the total bond market index fund and inflation protected bond fund (med. duration). It was fortunate for us that stocks had a good return in 2013 for our RMD. We need to have some bond or cash position for future RMD's so we don't have to sell low.
I think he means to hold the larger part of the bond asset in short durations and also at those point of the yield curve where return increase sharply for increases in duration.

I don't think that is something an investor with a good, simple plan needs to worry about.

I don't understand the concern about RMD. If you are 30/70, you have some bonds. I don't know what the scenario would be where you would sell stocks low. Suppose stocks crashed to half their value. Your asset allocation would then be 30 units in bonds and 35 in stocks or percent-wise 46/54. Say your RMD is 4% of those assets. Sell the 4% from bonds and your asset allocation becomes 42 of those units in bonds and 54 in stocks or percent-wise 44/56. Now you sell 14% of your assets from bonds and buy stocks and you are back at 30/70 with no sales of stocks.
Appears you are reading the OP "30/70 portfolio" as 70% stocks and 30% bonds? Did he indicate he meant that?
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Re: What does "Front-end load portfolio" mean

Post by Retread »

nickfrank wrote:Please respond
You only waited 37 minutes. Patience!
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dbr
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Re: What does "Front-end load portfolio" mean

Post by dbr »

JW Nearly Retired wrote:
dbr wrote:
nickfrank wrote:In the latest PIMCO Investment outlook Bill Gross states that we should position bonds to be heavily front-end maturity loaded along with credit volatility and curve steepening positions.
Will someone please translate this for me? It may help with our concerns.
We currently have a 30/70 portfolio with most of our bond investments in the total bond market index fund and inflation protected bond fund (med. duration). It was fortunate for us that stocks had a good return in 2013 for our RMD. We need to have some bond or cash position for future RMD's so we don't have to sell low.
I think he means to hold the larger part of the bond asset in short durations and also at those point of the yield curve where return increase sharply for increases in duration.

I don't think that is something an investor with a good, simple plan needs to worry about.

I don't understand the concern about RMD. If you are 30/70, you have some bonds. I don't know what the scenario would be where you would sell stocks low. Suppose stocks crashed to half their value. Your asset allocation would then be 30 units in bonds and 35 in stocks or percent-wise 46/54. Say your RMD is 4% of those assets. Sell the 4% from bonds and your asset allocation becomes 42 of those units in bonds and 54 in stocks or percent-wise 44/56. Now you sell 14% of your assets from bonds and buy stocks and you are back at 30/70 with no sales of stocks.
Appears you are reading the OP "30/70 portfolio" as 70% stocks and 30% bonds? Did he indicate he meant that?
JW
Yep, I read it right and then turned it around to do the arithmetic. Anyway, I really lose patience with this "I don't want to sell stocks when they are down." but then it turned out the worry was about not wanting to sell bonds when they are down, so the whole set of comments is a mess and we should start over.
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nickfrank
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Re: What does "Front-end load portfolio" mean

Post by nickfrank »

Sorry dbr for trying your patience. All I meant was I dislike selling "anything" at a loss whether it be stocks or bonds. I will have to have some IRA money in MM for future RMD's in case stocks and bonds retreat.
Thanks for your help and the many others who replied.
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FNK
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Re: What does "Front-end load portfolio" mean

Post by FNK »

nickfrank wrote:Sorry dbr for trying your patience. All I meant was I dislike selling "anything" at a loss whether it be stocks or bonds. I will have to have some IRA money in MM for future RMD's in case stocks and bonds retreat.
Thanks for your help and the many others who replied.
Couple of ideas:

Selling at a loss compared to what? To the recent high? That's bound to happen sometimes. To the price you paid? That's totally irrelevant to your current situation, and probably ignores dividends.

If you withdraw towards your AA (selling the portion that's higher than it should be), you'll generally sell the assets that have been trending higher lately.

If you don't have to spend the RMD, you can sell the assets in IRA, take the RMD and immediately repurchase the same assets in a taxable account - no loss taken. ;-)
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