SAMBX ? [Virtus Seix Floating Rate High Income Fund]

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mikeshep
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SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by mikeshep » Fri Feb 09, 2018 12:18 pm

Hi, I'm doing my best to stay calm with my 60/40 Bonds&FI to Equity portfolio down approx.115k in total value from the its all-time high of 1.9M about 1 month ago. My biggest bond funds are VFSUX and VFIDX. I have seen some historical evidence that bank loan rate funds may be a better 'storage place' in a certain rising interest rate environment such as we appear to be in now... I already have a smallish position in SAMBX. Is there any significant reason not to consider moving some portion of monies from these bond funds into SAMBX, just based on NAVs being impacted and my concern -which I'm sure others share continues to be that of seeing bond and equity funds move in tandem. And this is a portfolio that I'm advised to feel comfortable about in a high volatility market. 59 y/o...freelance worker...looking to work a little less over the next few years and have no debt. I haven't done anything at all to the allocation as per my hourly FA friend's usual advice. Would be glad to get some opinions on the SAMBX question though. Thanks

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sunnywindy
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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by sunnywindy » Fri Feb 09, 2018 12:33 pm

Your problem seems to be related more to your current asset allocation than what kind of bond fund you own. Seems like you would be more comfortable with a 40/60 ratio if you can't emotionally take the ups and downs of the market.
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nisiprius
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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by nisiprius » Fri Feb 09, 2018 12:42 pm

[Edit to be less snarky... I hope]
There are people in this forum who probably understand something about "floating rate high income" bonds but they are clearly a specialty item and you'd better know what you are doing. Back in 2006-2007 a lot of people got badly burned in investments they thought were practically mostly sorta as safe as money market funds, but higher-yielding. Auction-rate securities. The Schwab "Yield Plus" account. The GE "Enhanced Cash" account. At least one "ultrashort bond fund."

To me, "high income" is a red flag because that kind of language is usually a euphemism for "high income because of some kind of high risk."

And... checking quickly... guess what? It has low credit quality, average B rating... this is not an investment-grade bond fund.

Image

It really seems to me that people who are nervous about the effect of interest rates on intermediate-term bond funds should just take a deep breath and put the money in the bank, in the highest-earning CDs and savings accounts they can find.
Last edited by nisiprius on Fri Feb 09, 2018 2:03 pm, edited 1 time in total.
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mikeshep
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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by mikeshep » Fri Feb 09, 2018 1:49 pm

sunnywindy wrote:
Fri Feb 09, 2018 12:33 pm
Your problem seems to be related more to your current asset allocation than what kind of bond fund you own. Seems like you would be more comfortable with a 40/60 ratio if you can't emotionally take the ups and downs of the market.
My portfolio is about 55% bond/fixed income, 40 equity% - if that's what you're suggesting..I'm already pretty close to 60/40

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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by mikeshep » Fri Feb 09, 2018 1:53 pm

nisiprius wrote:
Fri Feb 09, 2018 12:42 pm
I am darned if I see why you would flail around from one bond fund to another. There are people in this forum who probably understand something about "floating rate high income" bonds but they are clearly a specialty item and you'd better know what you are doing. Back in 2006-2007 a lot of people got badly burned in investments they thought were practically mostly sorta as safe as money market funds, but higher-yielding. Auction-rate securities. The Schwab "Yield Plus" account. The GE "Enhanced Cash" account. At least one "ultrashort bond fund."

To me, "high income" is a red flag because that kind of language is usually a euphemism for "high income because of some kind of high risk."

And... checking quickly... guess what? It has low credit quality, average B rating... this is not an investment-grade bond fund.

That's fine if you knew that. Did you know that? Are you more comfortable with credit risk than interest-rate risk, and, if so, why?

It really seems to me that people who are nervous about the effect of interest rates on intermediate-term bond funds should just take a deep breath and put the money in the bank, in the highest-earning CDs and savings accounts they can find.
I wasn't coming off too aggressively in just "inquiring" about this was I? Geez... I mean I appreciate the information..wasn't professing some expertise. For the record, I've done absolutely nothing to my PF bond holdings for years and am not flailing around even while I drop 15-30k daily for the past week.. just sort of looking for perspective like maybe a few others might be trying to wrap their heads around things. On a general sidenote I hope these VIX fund gamblers who are allowed by way of deregulation and lax SEC to manipulate and game the markets get well punished.
Last edited by mikeshep on Fri Feb 09, 2018 2:04 pm, edited 1 time in total.

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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by nisiprius » Fri Feb 09, 2018 2:01 pm

mikeshep wrote:
Fri Feb 09, 2018 1:53 pm
I wasn't coming off too aggressively in just "inquiring" about this was I? Geez... I mean I appreciate the information..wasn't professing some expertise - on the contrary, I don't have an advisor I can call without being charged for a question so I use forums to get some perspectives... You seem to kinda be clubbing me over the head for asking...
My apologies. I'm the one who was too aggressive. I'm very sorry. Welcome to the forum, and I hope you'll stick around.

I edited my post to tone it down a bit... I hope.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by Easy Rhino » Fri Feb 09, 2018 2:08 pm

aw, niispirus just came across as cranky because everyone was asking these same questions in 2007. :)

Heck I owned some schwab yieldplus and was even received a bit of class action settlements from them.

Here's the thing about floating rate funds in general, what they're generally holding isn't bonds, but bank loans to businesses. So businesses that use bank loans are generally smaller and less credit worthy than ones that use bonds.

So yes, they can adapt to a rising rate environment, but more crucially there's going to be more credit risk, and in an economic downturn there's going to be more defaults and losses.

Which, if you're worried about your portfolio losing money , is probably something you want to avoid.

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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by lack_ey » Fri Feb 09, 2018 2:16 pm

If you want to reduce duration (interest rate risk), within fixed income there are money market funds, ultrashort bond funds, floating-rate bond funds, bank loans (aka leveraged loans, senior loans), some short-maturity junk bond funds, interest-rate hedged bond funds, among other things.

Bank loans would be a fairly narrow and illiquid category with relatively high credit risk. There are index funds in the space, but they are not cheap, and illiquid categories are not the best to index anyway. The issue is then that all of the funds are not cheap.

Do you have any particular insight as to why you would want this particular Virtus fund as opposed to others in the category, or were you more asking about the category?

Are you seeking higher credit risk, or were you just wanting to reduce duration? Or were you targeting bank loans specifically as an area that is undervalued relative to other fixed income (based on what)?

Depending on what it is you want to achieve, there are some other trades that may make more sense. For example, if you just want to reduce duration, you could just shift the allocation between your two largest bond fund holdings as described: Vanguard Intermediate-Term Investment Grade to Vanguard Short-Term Investment Grade (VFIDX -> VFSUX). If you want more exposure to sub-investment-grade credit (you know, despite spreads being now about at their lowest level since the financial crisis), there are other funds providing access to that that could be more appropriate.

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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by mikeshep » Fri Feb 09, 2018 2:40 pm

lack_ey wrote:
Fri Feb 09, 2018 2:16 pm
If you want to reduce duration (interest rate risk), within fixed income there are money market funds, ultrashort bond funds, floating-rate bond funds, bank loans (aka leveraged loans, senior loans), some short-maturity junk bond funds, interest-rate hedged bond funds, among other things.

Bank loans would be a fairly narrow and illiquid category with relatively high credit risk. There are index funds in the space, but they are not cheap, and illiquid categories are not the best to index anyway. The issue is then that all of the funds are not cheap.

Do you have any particular insight as to why you would want this particular Virtus fund as opposed to others in the category, or were you more asking about the category?

Are you seeking higher credit risk, or were you just wanting to reduce duration? Or were you targeting bank loans specifically as an area that is undervalued relative to other fixed income (based on what)?

Depending on what it is you want to achieve, there are some other trades that may make more sense. For example, if you just want to reduce duration, you could just shift the allocation between your two largest bond fund holdings as described: Vanguard Intermediate-Term Investment Grade to Vanguard Short-Term Investment Grade (VFIDX -> VFSUX). If you want more exposure to sub-investment-grade credit (you know, despite spreads being now about at their lowest level since the financial crisis), there are other funds providing access to that that could be more appropriate.
Thanks folks. Well I'd just looked at SAMBX because I already have a modest position in it and was interested in why historic data indicated that it was a sector that in past periods of rising interest rates, vs. other bond categories, appeared to have performed well 'for a time...' - But I am NOT looking to try and "time" per se... I'm really just mostly concerned about the bond fund NAVs and share frustration with some other investors who see the prospect of those funds losing value, presumably in some part due to a rising interest rate environment. I want to be in the most 'logical' FI positions to ideally help offset equity volatility/losses... Probably adding to VFSUX from VFIDX (or taking some of both just into MM/Cash) makes more sense than anything at the moment...or do nothing at all -which most here likely would consider the best 'action.'

What's maybe the most concerning issue - and it has been for years - is the mechanics of The Markets themselves, i.e., the machinery of nanosecond algorithmic trading...as well as derivatives and Fi-industry regs/oversight in general. A whole 'nother discussion, I know.
I see btw Fidelity is putting some kind of restriction on traders playing one of these VIX-gaming ETFs/ETNS. Good.

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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by sunnywindy » Fri Feb 09, 2018 2:46 pm

mikeshep wrote:
Fri Feb 09, 2018 1:49 pm
sunnywindy wrote:
Fri Feb 09, 2018 12:33 pm
Your problem seems to be related more to your current asset allocation than what kind of bond fund you own. Seems like you would be more comfortable with a 40/60 ratio if you can't emotionally take the ups and downs of the market.
My portfolio is about 55% bond/fixed income, 40 equity% - if that's what you're suggesting..I'm already pretty close to 60/40
You are correct - you did write 60% bond 40% equity, so my mistake (for future reference, the ratio is always "stocks/bonds" and not the other way around, so to avoid future confusion, use the stocks first bonds second order because people's brains become 'wired' for that order and it's hard to switch!) :mrgreen:

Regardless, your bond allocation already is tilted to short-term bonds, so it's not especially volatile and I would not recommend going into a highly illiquid esoteric asset class (Bank Loans) to solve what my armchair psychologist analysis thinks is an emotional aversion to loss for you. This is a completely normal reaction to financial volatility and most humans are vulnerable to this.

The way I see it, you have a few choices: go shorter in your bond allocation, go minimum volatility in your equity allocation, allocate more to bonds in your allocation mix, buy a CD(s), get a high yield savings account, or learn how to emotionally cope with market ups and downs. My strategy is to learn the most I can about how the markets function so that I know its behavior. I lived through Black Monday in '87 when the market went down 22% in one day and believe me, that was a shocker. So, the current down market isn't anything special for me and it doesn't surprise me one bit considering the unreasonably placid 2017 and bizarre Jan 2018 upturn. I will admit it has been a swift downturn, but not at a societal crushing pace or percentage drop.

You also have to remember that this is a Boglehead forum and we espouse the wisdom of John Bogle. SAMBX is not a fund in that spirit and there really isn't any reason to buy it. One of the principle mistakes investors make (and advisors and legacy fund companies perpetuate) is they tell a 'story' to themselves about why you need this or that fund, but it is almost always not true. You need peace of mind and your current stock/bond allocation is not emotionally satisfying to you (you clearly indicate this). You don't need SAMBX, you need less volatility.

Lastly, I've read many of nisiprius' posts and I know he didn't mean to be rude or disrespectful, just educational. He has helped A LOT of people over the years and that's his only intention.
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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by lack_ey » Fri Feb 09, 2018 3:40 pm

mikeshep wrote:
Fri Feb 09, 2018 2:40 pm
Thanks folks. Well I'd just looked at SAMBX because I already have a modest position in it and was interested in why historic data indicated that it was a sector that in past periods of rising interest rates, vs. other bond categories, appeared to have performed well 'for a time...' - But I am NOT looking to try and "time" per se... I'm really just mostly concerned about the bond fund NAVs and share frustration with some other investors who see the prospect of those funds losing value, presumably in some part due to a rising interest rate environment. I want to be in the most 'logical' FI positions to ideally help offset equity volatility/losses... Probably adding to VFSUX from VFIDX (or taking some of both just into MM/Cash) makes more sense than anything at the moment...or do nothing at all -which most here likely would consider the best 'action.'

What's maybe the most concerning issue - and it has been for years - is the mechanics of The Markets themselves, i.e., the machinery of nanosecond algorithmic trading...as well as derivatives and Fi-industry regs/oversight in general. A whole 'nother discussion, I know.
I see btw Fidelity is putting some kind of restriction on traders playing one of these VIX-gaming ETFs/ETNS. Good.
The reason why is less interest rate exposure because these have resetting payouts tied to a benchmark rate (such as LIBOR) plus a spread. So unlike most fixed income, here the income is not actually fixed. It's floating rate. When rates go up across the yield curve, the price shouldn't really drop, all else equal. For most bonds, that is not the case—yields increasing means lower prices.

If you want to offset equity volatility/losses, you want higher credit quality, and you probably don't want the bank loans category. Consider selling the fund unless you really want this specifically.

mikeshep
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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by mikeshep » Fri Feb 09, 2018 4:46 pm

sunnywindy wrote:
Fri Feb 09, 2018 2:46 pm
mikeshep wrote:
Fri Feb 09, 2018 1:49 pm
sunnywindy wrote:
Fri Feb 09, 2018 12:33 pm
Your problem seems to be related more to your current asset allocation than what kind of bond fund you own. Seems like you would be more comfortable with a 40/60 ratio if you can't emotionally take the ups and downs of the market.
My portfolio is about 55% bond/fixed income, 40 equity% - if that's what you're suggesting..I'm already pretty close to 60/40
You are correct - you did write 60% bond 40% equity, so my mistake (for future reference, the ratio is always "stocks/bonds" and not the other way around, so to avoid future confusion, use the stocks first bonds second order because people's brains become 'wired' for that order and it's hard to switch!) :mrgreen:

Regardless, your bond allocation already is tilted to short-term bonds, so it's not especially volatile and I would not recommend going into a highly illiquid esoteric asset class (Bank Loans) to solve what my armchair psychologist analysis thinks is an emotional aversion to loss for you. This is a completely normal reaction to financial volatility and most humans are vulnerable to this.

The way I see it, you have a few choices: go shorter in your bond allocation, go minimum volatility in your equity allocation, allocate more to bonds in your allocation mix, buy a CD(s), get a high yield savings account, or learn how to emotionally cope with market ups and downs. My strategy is to learn the most I can about how the markets function so that I know its behavior. I lived through Black Monday in '87 when the market went down 22% in one day and believe me, that was a shocker. So, the current down market isn't anything special for me and it doesn't surprise me one bit considering the unreasonably placid 2017 and bizarre Jan 2018 upturn. I will admit it has been a swift downturn, but not at a societal crushing pace or percentage drop.

You also have to remember that this is a Boglehead forum and we espouse the wisdom of John Bogle. SAMBX is not a fund in that spirit and there really isn't any reason to buy it. One of the principle mistakes investors make (and advisors and legacy fund companies perpetuate) is they tell a 'story' to themselves about why you need this or that fund, but it is almost always not true. You need peace of mind and your current stock/bond allocation is not emotionally satisfying to you (you clearly indicate this). You don't need SAMBX, you need less volatility.

Lastly, I've read many of nisiprius' posts and I know he didn't mean to be rude or disrespectful, just educational. He has helped A LOT of people over the years and that's his only intention.
Thanks for the thoughtful reply...btw i recognize nisiprius didn't intend to come off abruptly ( no problem nisiprius: ) - and know that he's been very helpful here - I'm actually not a newcomer to the forum, + a major Bogle fan...(i consider "Enough" to be a classic and more timely than ever now) -- just haven't been over here in a while. Usually it's when I'm second-guessing my FA -which is a bad habit - but i'll reiterate he is hourly with no agenda to push products at all- just a fellow who i review things with 'as-needed.' I trust that he's generally got me in a sensible place with my portfolio and risk tolerance in mind. (it's just that it costs me money if i want to ask him a question ; ) -- ANyway... yeah point taken re: aversion to volatility - believe it or not I've gotten far better at sitting through these radical swings - tho my major experience was only 2008 - which was when i shifted to a higher bond ratio and rightly or wrongly, never went back to anything above 45% equity since. Still with accumulation to about 1.94m in assets under this FA's oversight ( well,1.84m after the current sell-off) -I'm not disappointed about how i've done. ("Enough"? Probably: ). That in mind, at age 59 perhaps you can understand my being somewhat protectionist and having some trepidation about any erosion of bond fund NAVs or otherwise.

Thanks again!

Mike

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Re: SAMBX ? [Virtus Seix Floating Rate High Income Fund]

Post by mikeshep » Fri Feb 09, 2018 11:44 pm

Actualy more I research it, more I can see the case for adding to SAMBX. I see documentation that supports
it vs other bond fund classes in rising-rate scenarios and I can see it as a better alternative to letting a VFIDX
or longer-duration bond fund amount slide... even if for a portion of that amount - and for the near term but
not for ever...

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