Pimco Income Fund vs. Vanguard Total Bond Market

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joer1212
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Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Sun Dec 25, 2016 9:15 pm

If you had a choice between the Pimco Income fund (PIMIX) and Vanguard Total Bond Market Index Fund (VBTLX) for your Roth IRA, which would you invest in?

My friend is a successful financial advisor. He's transferring all his Roth IRA money into the Pimco fund (~390K). He says that it has a much higher yield and better track record than VBTLX over the last 10 years. I am wondering what is the price of this better performance. Is it riskier? It's certainly more expensive than the Vanguard fund, though admittedly, not by a huge margin.

Now, I know that past performance is not indicative of future results, but the superior yield alone of the Pimco fund piques my interest.

Do you think my friend is making a good move?

PIMIX: Yield 7.61%/ E.R. 0.45%/ 9.01% 5 yr avg return

VBTLX: Yield 2.49%/ E.R 0.06% /2.31% 5 yr avg return
Last edited by joer1212 on Mon Dec 26, 2016 3:14 am, edited 2 times in total.

Nate79
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Nate79 » Sun Dec 25, 2016 9:41 pm

Just say No to junk bonds.

am
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby am » Sun Dec 25, 2016 9:42 pm

Higher yield means more risk. Many around here agree that bonds are for safety and stocks are for returns.

lack_ey
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby lack_ey » Sun Dec 25, 2016 9:48 pm

Looks like you're quoting TTM yield, not SEC yield. The latter is 3.70% to 2.42%.

The 10 yr change I can't even tell what... wait, that looks approximately like total cumulative price return? You know that doesn't include dividends (from underlying bond interest payments), right? For what it's worth, PIMCO Income isn't even quite 10 years old (inception March 2007), but that's a relatively minor detail comparatively.

Regardless it has had a much higher return than a total bond fund since inception, about 9.1% compared to 4.2%. This with appreciably more risk. The fund is very actively managed with sector bets, security analysis, macro/economic forecasts, etc., using leverage, investing significantly in high yield/emerging markets, investing very heavily in mortgage backed bonds, particularly non-agency MBS. Track record so far is very good, though. The question is how much that tells you about future performance.

The SPIVA stats and an examination of bond funds overall will tell you that most active bond funds don't outperform indexes and most don't do well for the risk taken. In stock funds I know there is a lot of evidence showing a lack of performance persistence (it isn't the same winners over time, so picking past outperformers is not a good strategy). In bond funds I haven't seen the data personally; by default I'd guess the same holds but I don't want to assume things. Anybody have data on that?

For sure this bond fund has been one of the best over the period. Somebody's liable to win spectacularly, though, when there are so many funds available.

joer1212
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Sun Dec 25, 2016 10:30 pm

am wrote:Higher yield means more risk. Many around here agree that bonds are for safety and stocks are for returns.


The same thought crossed my mind. I prefer to play it safe in the bond portion of my portfolio and take more risk on the equity side, even if that means allocating a higher percentage to stocks.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Trader/Investor » Sun Dec 25, 2016 10:36 pm

Nate79 wrote:Just say No to junk bonds.


Whoa! Since the turn of the new century in 2000 junk bonds have outperformed the S&P. If that is cherry picking then eyeball the return of Vanguard's high yield junk bond fund since inception in the late 70s. Looks pretty stellar to me and without the associated drawdowns of the S&P over that time period. And that fund is hardly best of breed in that category. An ex girlfriend still thanks me to this day for having her put a portion of all next egg into PRHYX (T Rowe's junk fund) in 1992. She could never have stomached the drama of the S&P over that time frame. The link below shows junk bond returns over the past 25 years compared with the S&P. Anyone saying junk bonds are a flawed investment obviously has never invested in junk bonds. The only reason I can enjoy a secure retirement is because of junk bonds. Albeit in fairness I have been a trader in them and not an investor.

http://www.peritusasset.com/2016/10/bon ... g-matters/

As for PONDX/PIMIX it's manager Dan Ivascyn is probably the absolute best bond manager out there. Unlike Gundlach who actively seeks publicity, Ivascyn just goes quietly about his business of consistent outperformance. I have always been worried about the huge growth in assets Ivascyn manages but so far he hasn't missed a beat.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Taylor Larimore » Sun Dec 25, 2016 10:40 pm

I prefer to play it safe in the bond portion of my portfolio and take more risk on the equity side, even if that means allocating a larger percentage to stocks.

This is correct. Bonds are for safety. Higher yield nearly always reflects higher risk. In my opinion, Vanguard diversified Total Bond Market Index Fund is the superior choice.
More money has been lost reaching for higher yield than has been lost at the point of a gun.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Sun Dec 25, 2016 10:46 pm

lack_ey wrote:it has had a much higher return than a total bond fund since inception, about 9.1% compared to 4.2%. This with appreciably more risk. The fund is very actively managed with sector bets, security analysis, macro/economic forecasts, etc., using leverage, investing significantly in high yield/emerging markets, investing very heavily in mortgage backed bonds, particularly non-agency MBS. Track record so far is very good, though. The question is how much that tells you about future performance.


Seems like this fund is equity-like and has more in common with stocks and junk bond funds than treasuries and investment-grade corporates. Might as well simply place your money in stocks.

lack_ey wrote:The SPIVA stats and an examination of bond funds overall will tell you that most active bond funds don't outperform indexes and most don't do well for the risk taken. In stock funds I know there is a lot of evidence showing a lack of performance persistence (it isn't the same winners over time, so picking past outperformers is not a good strategy). In bond funds I haven't seen the data personally; by default I'd guess the same holds but I don't want to assume things. Anybody have data on that?


Here's an interesting thread on this topic:

viewtopic.php?t=165001
Last edited by joer1212 on Mon Dec 26, 2016 3:20 am, edited 1 time in total.

carguyny
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby carguyny » Sun Dec 25, 2016 11:07 pm

I'm a fan of and own PIMIX in my portfolio. It is part of my bond allocation with the rest being directly held CDs and Treasuries (now all < 5 years in maturity).

PIMIX drives most of its higher yield from EM Debt vs Corporate Debt in Vanguard Total Bond Market. It also has a significantly lower duration, so less interest rate risk.

My setup is a little more complicated, but I prefer to stay away from longer duration BBB Corporate debt which makes up a little less than 15% of Vanguard Total Bond Market.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby The Casualty » Sun Dec 25, 2016 11:26 pm

Own it as well, it's been a very good investment. According to Morningstar it lost -5.47 % in 2008, I can live with that. I have $200K in it (Institutional Class Shares PIMIX) and collect a little over $1K a month in dividends. I consider it a slightly risky bond fund.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Mon Dec 26, 2016 12:23 am

Trader/Investor wrote:Whoa! Since the turn of the new century in 2000 junk bonds have outperformed the S&P. If that is cherry picking then eyeball the return of Vanguard's high yield junk bond fund since inception in the late 70s. Looks pretty stellar to me and without the associated drawdowns of the S&P over that time period. And that fund is hardly best of breed in that category. An ex girlfriend still thanks me to this day for having her put a portion of all next egg into PRHYX (T Rowe's junk fund) in 1992. She could never have stomached the drama of the S&P over that time frame. The link below shows junk bond returns over the past 25 years compared with the S&P. Anyone saying junk bonds are a flawed investment obviously has never invested in junk bonds. The only reason I can enjoy a secure retirement is because of junk bonds. Albeit in fairness I have been a trader in them and not an investor.

http://www.peritusasset.com/2016/10/bon ... g-matters/


A modest amount of junk in your portfolio for income during retirement can't hurt, I guess, but when you're dollar-cost-averaging in the accumulation stage, volatility is your friend. DC averaging into a volatile fund results in greater returns over the long run than if you DCA into a more stable, steadily rising fund. Hence, stocks are better than junk bonds for DCA due to their greater volatility.

Trader/Investor wrote:As for PONDX/PIMIX it's manager Dan Ivascyn is probably the absolute best bond manager out there. Unlike Gundlach who actively seeks publicity, Ivascyn just goes quietly about his business of consistent outperformance. I have always been worried about the huge growth in assets Ivascyn manages but so far he hasn't missed a beat.


But, what happens when he missteps (remember Bill Miller's Legg Mason fund?)? There is always that threat, like an axe constantly hanging over your head. A few really bad years can erase decades of outperformance.
Last edited by joer1212 on Mon Dec 26, 2016 12:57 am, edited 2 times in total.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Mon Dec 26, 2016 12:30 am

Taylor Larimore wrote:More money has been lost reaching for higher yield than has been lost at the point of a gun.


Did Bogle come up with this clever quip? I remember reading it somewhere. :thumbsup
Last edited by joer1212 on Mon Dec 26, 2016 3:10 am, edited 2 times in total.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Mon Dec 26, 2016 12:39 am

carguyny wrote:I'm a fan of and own PIMIX in my portfolio. It is part of my bond allocation with the rest being directly held CDs and Treasuries (now all < 5 years in maturity).

PIMIX drives most of its higher yield from EM Debt vs Corporate Debt in Vanguard Total Bond Market. It also has a significantly lower duration, so less interest rate risk.

My setup is a little more complicated, but I prefer to stay away from longer duration BBB Corporate debt which makes up a little less than 15% of Vanguard Total Bond Market.


The Casualty wrote:Own it as well, it's been a very good investment. According to Morningstar it lost -5.47 % in 2008, I can live with that. I have $200K in it (Institutional Class Shares PIMIX) and collect a little over $1K a month in dividends. I consider it a slightly risky bond fund.


I suppose that adding this fund to one's portfolio, as part of an asset allocation strategy, can't do much harm, as long as it replaces equity. Adding it in lieu of treasuries, on the other hand, will likely increase your portfolio's risk.
Last edited by joer1212 on Mon Dec 26, 2016 3:10 am, edited 1 time in total.

rrppve
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby rrppve » Mon Dec 26, 2016 2:02 am

What's unclear is what portion of you or your friend's fixed income allocation the fund represents. If it is only a part of his fixed income allocation, I do think it makes sense to be in his Roth rather than Total Bond, as PIMIX has higher tax drag due to its higher yield. It is not a substitute for Total Bond. So is the question one of asset location or what is a more suitable investment?

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby ofcmetz » Mon Dec 26, 2016 2:16 am

I think these are two very different bond funds here. I don't see why it has to be one or the other with fixed income. My strategy is to use passive whenever possible when it comes to bond (and any other) funds, but this Pimco fund would be fine in my opinion if you prefer the active route. Just remember with active things can change like when Bill Gross left the Total Return Fund. Other times star managers can just lose their touch. Tread carefully.
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Mon Dec 26, 2016 2:58 am

rrppve wrote:What's unclear is what portion of you or your friend's fixed income allocation the fund represents. If it is only a part of his fixed income allocation, I do think it makes sense to be in his Roth rather than Total Bond, as PIMIX has higher tax drag due to its higher yield. It is not a substitute for Total Bond. So is the question one of asset location or what is a more suitable investment?


Good point.

In my case, fixed income comprises less than 10% of my portfolio, and PIMIX--if I decided to include it--would make up roughly 1/3 of that, so we're not talking about a huge slice of my assets.

In my friend's case, PIMIX might comprise up to 20% of his portfolio. It may even be his only fixed income fund, though I could be wrong.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Mon Dec 26, 2016 2:59 am

ofcmetz wrote:Just remember with active things can change like when Bill Gross left the Total Return Fund. Other times star managers can just lose their touch. Tread carefully.


Very true.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Mon Dec 26, 2016 4:02 am

One important point that I forgot to mention is that my financial advisor friend has access to PIMIX, which is an institutional class fund. It has no loads and a relatively low expense ratio. As an individual investor, I'm not sure if I qualify for this fund.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby SpringMan » Mon Dec 26, 2016 5:23 am

joer1212 wrote:One important point that I forgot to mention is that my financial advisor friend has access to PIMIX, which is an institutional class fund. It has no loads and a relatively low expense ratio. As an individual investor, I'm not sure if I qualify for this fund.

Vanguard customers have access to PIMIX but it has a 25K minimum. Flagship clients can use one of their 25 free trades per year. I used to own it at VBS but (maybe unfortunately?) moved all my fixed income to TBM and hold some Wellesley Income fund.
Best Wishes, SpringMan

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Doc » Mon Dec 26, 2016 11:48 am

ofcmetz wrote:I think these are two very different bond funds here. I don't see why it has to be one or the other with fixed income. My strategy is to use passive whenever possible when it comes to bond (and any other) funds, but this Pimco fund would be fine in my opinion if you prefer the active route. Just remember with active things can change like when Bill Gross left the Total Return Fund. Other times star managers can just lose their touch. Tread carefully.


I use PTTRX (Pimco Total Return) instead of TBM.

Morningstar wrote:This fund's [PIMIX] atypical-for-PIMCO yield focus, heavier-than-usual reliance on sectors less tied to macro decisions, and strong resources have helped isolate it from the fallout of Bill Gross' late 2014 departure.


Unlike ofcmetz and Taylor I belive that active management in fixed income does not suffer from the high management cost and high transaction costs that you get in equity funds. In our Vanguard accounts I prefer their active bond funds to their indexed funds for FI. An active can easily avoid a low float position in an index and reduce transaction cost without introducing tracking error. Vanguard itself did this itself in part by changing their index to the free float version of the BB_AGG. Pimco takes the idea of reducing costs further by the use of derivatives. The macro approach of sector switching and lower quality at times is a different issue and may come with higher risk in the short run. Certainly Pimco funds have higher variance than a TBM fund but maybe in the right direction in a stock market crash.

However I certainly wouldn't put my entire FI position in Pimco funds and I only use money that will never be used for rebalancing.
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby arcticpineapplecorp. » Mon Dec 26, 2016 12:06 pm

What most people care about is another 2008 type event, which is why you hold the right types of bonds (intermediate, high quality, low cost, well diversified). The right types of bonds acts as a ballast to your portfolio. If we look at 2008 (1/1/08-12/31/08) we see that (in order of appearance in graph) Vanguard's Total bond market index fund (admiral) actually ended UP (making 5.14% for 2008) while PIMIX lost 5.48%, Vanguard total stock market index fund (Admiral) lost 37% and finally Vanguard high yield corporate index fund lost 21.2%. Looks like Vanguard's total bond market index was the best choice in 2008. What do you think?

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby lack_ey » Mon Dec 26, 2016 12:27 pm

joer1212 wrote:
lack_ey wrote:it has had a much higher return than a total bond fund since inception, about 9.1% compared to 4.2%. This with appreciably more risk. The fund is very actively managed with sector bets, security analysis, macro/economic forecasts, etc., using leverage, investing significantly in high yield/emerging markets, investing very heavily in mortgage backed bonds, particularly non-agency MBS. Track record so far is very good, though. The question is how much that tells you about future performance.


Seems like this fund is equity-like and has more in common with stocks and junk bond funds than treasuries and investment-grade corporates. Might as well simply place your money in stocks.

That's not how it's been in the past, at least by its return history. It's not tracked stocks or high yield. Without looking into it more, I can't tell if that's because prior allocations were different or because all the other holdings and overall strategy balance it out.

You might want to check its allocation 2007-2009 and see why it didn't lose much money then. It has to be from market timing some of that correctly, I would think, and it happened when the fund had a lot less in AUM. In general I would be skeptical of continued alpha from market timing, though even then a lot of the results the last five years are very good too, from taking risks that didn't happen to result in serious downside.

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http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

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https://www.portfoliovisualizer.com/ass ... ingDays=60

I don't think it's a good idea to focus primarily on performance only during a stock meltdown as those are rare and returns all the rest of the time do add up a lot. A lot of people subscribe to the "take risks in stocks, not bonds" philosophy but I don't really see why. Basic portfolio theory would tell you that if most of your risk is taken in one asset (equities), then adding other risks elsewhere won't have much of an impact on total risk of the entire portfolio, as long as they're not significantly correlated with the primary (equity) risk you have. Here it's not particularly obvious with PIMCO Income that they are.

Now, some of the DFA-type-school thinkers would tell you that historically credit risk is not very rewarded, but (1) this particular fund is not particularly loading on credit and certainly not in the traditional ways, and (2) that analysis is based primarily on evaluation of long-term corporate bond returns (for which there is older data) that compares corporates to Treasuries on a constant maturity rather than option-adjusted duration basis. i.e. it is ostensibly evaluating credit risk but does not hold term risk constant

I have not looked at the fund much and would need to study a lot of other things more to have a real opinion, but here is my take on using the fund:
  • You should be very wary of putting a heavy weighting in any very actively managed strategy (manager risk)
  • The fund is relatively narrowly invested and perhaps not as much intended a core fixed income holding
  • Any strongly outperforming fund will almost certainly not sustain those levels; the question is not if it will be worse in the future, but how much so

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Mon Dec 26, 2016 1:12 pm

arcticpineapplecorp. wrote:What most people care about is another 2008 type event, which is why you hold the right types of bonds (intermediate, high quality, low cost, well diversified). The right types of bonds acts as a ballast to your portfolio. If we look at 2008 (1/1/08-12/31/08) we see that (in order of appearance in graph) Vanguard's Total bond market index fund (admiral) actually ended UP (making 5.14% for 2008) while PIMIX lost 5.48%, Vanguard total stock market index fund (Admiral) lost 37% and finally Vanguard high yield corporate index fund lost 21.2%. Looks like Vanguard's total bond market index was the best choice in 2008. What do you think?

Image


This is exactly why I believe that, if you're going to include low quality bond funds at all, they should be considered part of your equity allocation. They should not be counted as part of the fixed income portion of your portfolio, since they are more correlated with stocks and don't offer much diversification. So, now the question becomes, is it worth it to include PIMIX in lieu of VTSAX (Vanguard Total Stock Market Index) for at least a portion of your portfolio?

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby garlandwhizzer » Mon Dec 26, 2016 1:45 pm

lack_ey wrote:

I have not looked at the fund much and would need to study a lot of other things more to have a real opinion, but here is my take on using the fund:
You should be very wary of putting a heavy weighting in any very actively managed strategy (manager risk)
The fund is relatively narrowly invested and perhaps not as much intended a core fixed income holding
Any strongly outperforming fund will almost certainly not sustain those levels; the question is not if it will be worse in the future, but how much so


1+

Skating where the puck was (performance chasing) when it comes to active management often turns out in the end to be a loser's game. There may or may not be free lunches in volatile equity markets, but there are no free lunches in the fixed income market as I see it. Risk and reward are tightly correlated. Essentially no one gets greater return without taking greater risk in fixed income. Sometimes taking more risk pays off as it has over the past decade for this Pimco fund. It is important to recall that in most of those years this fund was run by a manager, Bill Gross, who is no longer with Pimco. Whether it will outperform or do the opposite in the future has about the same degree certainty as flipping a coin. One of the few principles that holds true for markets when it comes to investing strategies, be it growth versus value or talking more risk for higher return in the fixed income market, is that after a long period of outperformance by a given strategy, the opposite tends to happen as reversion to the mean takes over. No one reliably picks these inflection points accurately and consistently but it is certainly possible, I would say likely, that the future of this fund will not be as rosy as its past.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Explorer » Mon Dec 26, 2016 2:00 pm

I hold PIMIX and view it as a balanced fund more so than a bond fund...something like a 60/40 fund.

I personally don't think it is fair to compare PIMIX with a TBM fund -- they are different animals.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Munir » Mon Dec 26, 2016 2:14 pm

Doc wrote:
Unlike ofcmetz and Taylor I belive that active management in fixed income does not suffer from the high management cost and high transaction costs that you get in equity funds. In our Vanguard accounts I prefer their active bond funds to their indexed funds for FI. An active can easily avoid a low float position in an index and reduce transaction cost without introducing tracking error. Vanguard itself did this itself in part by changing their index to the free float version of the BB_AGG. Pimco takes the idea of reducing costs further by the use of derivatives. The macro approach of sector switching and lower quality at times is a different issue and may come with higher risk in the short run. Certainly Pimco funds have higher variance than a TBM fund but maybe in the right direction in a stock market crash.

However I certainly wouldn't put my entire FI position in Pimco funds and I only use money that will never be used for rebalancing.


Doc: what is your opinion of the actively-managed Vanguard Core Bond fund?

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby lack_ey » Mon Dec 26, 2016 2:15 pm

Explorer wrote:I hold PIMIX and view it as a balanced fund more so than a bond fund...something like a 60/40 fund.

I personally don't think it is fair to compare PIMIX with a TBM fund -- they are different animals.

joer1212 wrote:This is exactly why I believe that, if you're going to include low quality bond funds at all, they should be considered part of your equity allocation. They should not be counted as part of the fixed income portion of your portfolio, since they are more correlated with stocks and don't offer much diversification. So, now the question becomes, is it worth it to include PIMIX in lieu of VTSAX (Vanguard Total Stock Market Index) for at least a portion of your portfolio?

But does it actually behave even partially like stocks? How much? What are its underlying risks and how do they fare under different equity regimes?

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Explorer » Mon Dec 26, 2016 4:16 pm

lack_ey wrote:
Explorer wrote:I hold PIMIX and view it as a balanced fund more so than a bond fund...something like a 60/40 fund.

I personally don't think it is fair to compare PIMIX with a TBM fund -- they are different animals.

joer1212 wrote:This is exactly why I believe that, if you're going to include low quality bond funds at all, they should be considered part of your equity allocation. They should not be counted as part of the fixed income portion of your portfolio, since they are more correlated with stocks and don't offer much diversification. So, now the question becomes, is it worth it to include PIMIX in lieu of VTSAX (Vanguard Total Stock Market Index) for at least a portion of your portfolio?

But does it actually behave even partially like stocks? How much? What are its underlying risks and how do they fare under different equity regimes?


If you observe the SD, sharpe/sortino ratios, and correlation of PIMIX with the stock market you will be able to answer your questions yourself.

Another data point: If you backtest PIMIX with VWIAX and VWENX (Wellesley/Wellington funds), you will see that PIMIX handily beat those two funds.

By the way, there are other funds such as unconstrained active bond funds that should be examined as well.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Phineas J. Whoopee » Mon Dec 26, 2016 4:49 pm

joer1212 wrote:
Taylor Larimore wrote:More money has been lost reaching for higher yield than has been lost at the point of a gun.

Did Bogle come up with this clever quip? I remember reading it somewhere. :thumbsup

I didn't find a primary source, only several secondaries, but it appears to have been the late Raymond DeVoe Jr.
PJW

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby rgs92 » Mon Dec 26, 2016 5:25 pm

I thing VWEAH (High Yield Corporate Admiral) would be a better comparison to the Pimco fund.
(13bp expenses, current yield 5.41%, 4-star Morningstar rating FWIW.)

The non-Admiral VWEHX has expenses of 23bp.

VWEAX:
Trailing returns
1 day +0.00%
1 week +0.09%

4 week +1.15%

3 month +0.87%

YTD +10.89%

1 year +11.89%

3 years* +4.70%

5 years* +6.69%

*annualized
Best 3 month return +14.76%
Worst 3 month return -25.50%

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Doc » Mon Dec 26, 2016 5:55 pm

Munir wrote:Doc: what is your opinion of the actively-managed Vanguard Core Bond fund?


Not my cup of Tea. I avoid long bonds and MBS. It underperforms TBM when Pimco total Return outperforms TBM. If I going to take credit and term risk (M* has it as BBB) I should at least get something for it. Moreover it only came out of subscription in March.

"Pig in a poke".
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Explorer » Mon Dec 26, 2016 6:10 pm

rgs92 wrote:I thing VWEAH (High Yield Corporate Admiral) would be a better comparison to the Pimco fund.
(13bp expenses, current yield 5.41%, 4-star Morningstar rating FWIW.)

The non-Admiral VWEHX has expenses of 23bp.

VWEAX:
Trailing returns
1 day +0.00%
1 week +0.09%

4 week +1.15%

3 month +0.87%

YTD +10.89%

1 year +11.89%

3 years* +4.70%

5 years* +6.69%

*annualized
Best 3 month return +14.76%
Worst 3 month return -25.50%


For the past years - where cheap credit was available - this comparison worked. I don't think it will once interest rates start resetting higher as anticipated.
PIMIX is a high-octane, multi-sector bond fund where it takes a lot of credit risk across the quality spectrum but it manages duration well with credit swaps and such derivatives (at times it will have negative duration).

TBM has a mandate on duration, which really hurt it in the recent past and will continue to hurt TBM every time there is a sudden move up in interest rates.

Make no mistake - TBM will be volatile as rates start rising.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby BlueEars » Mon Dec 26, 2016 7:33 pm

Doc wrote:
Munir wrote:Doc: what is your opinion of the actively-managed Vanguard Core Bond fund?


Not my cup of Tea. I avoid long bonds and MBS. It underperforms TBM when Pimco total Return outperforms TBM. If I going to take credit and term risk (M* has it as BBB) I should at least get something for it. Moreover it only came out of subscription in March.

"Pig in a poke".

I don't follow you Doc. From 4/1/16 to now, VCOBX (core bond) has outperformed VBTLX (total bond) by a small amount. VCOBX has 14% of it's bonds in the >10 year category versus 17% for VBTLX. It is true that VCOBX is BBB (from M*) versus AA for VBTLX.

What would you select in place of VCOBX?

FWIW, in VG bond funds I have a ratio of 2:1 for VFIDX:VCOBX.

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Managed Fixed Income Funds vs. Index Fixed Income Funds

Postby Taylor Larimore » Mon Dec 26, 2016 8:14 pm

Doc wrote:Unlike ofcmetz and Taylor I believe that active management in fixed income does not suffer from the high management cost and high transaction costs that you get in equity funds.

Doc:

According to the S&P Dow Jones Indices Scorecard (Report 11), during the past 10 years, managed fixed-income funds underperformed their index benchmark in all 13 fixed-income categories.

2016 mid-year SPIVA Report 11

Happy Holidays!
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby arcticpineapplecorp. » Mon Dec 26, 2016 8:17 pm

Explorer wrote:For the past years - where cheap credit was available - this comparison worked. I don't think it will once interest rates start resetting higher as anticipated.
PIMIX is a high-octane, multi-sector bond fund where it takes a lot of credit risk across the quality spectrum but it manages duration well with credit swaps and such derivatives (at times it will have negative duration).

TBM has a mandate on duration, which really hurt it in the recent past and will continue to hurt TBM every time there is a sudden move up in interest rates.

Make no mistake - TBM will be volatile as rates start rising.

Volatile, maybe. But the returns were still positive in the past during times of rising rates. See Taylor's post below. The late 70s and early 80s were a time of inflation and rising rates as Former Fed Chief Paul Volcker raised rates to choke off inflation. Only negative years were 1994 and 1999.

Vanguard's Total Bond Market Index Fund was started by Jack Bogle in December, 1986. It is a very diversified, high-quality, intermediate-term bond index fund that tracks Barclays US Aggregate Bond Index (formerly the Lehman Aggregate Bond Index created in 1976). Jack's invention is now the world's largest bond index fund.

Listed below are the historical U.S. inflation rates (CPI-U) and total returns for the Aggregate Bond Index since its inception:

YEAR--INFLATION--BOND INDEX
1976-------4.9%--------15.6%
1977-------6.7-----------3.0
1978-------9.0-----------1.4
1979------13.3-----------1.9
1980------12.5-----------2.7
1980------12.5-----------2.7
1981-------8.9-----------6.3
1982-------3.8----------32.6
1983-------3.8-----------8.4
1984-------3.9----------15.2
1985-------3.8----------22.1
1986-------1.1----------15.2
1987-------4.4-----------2.8
1988-------4.4-----------7.9
1989-------4.6----------14.5
1990-------6.1-----------8.9
1991-------3.1----------16.0
1992-------2.9-----------7.4
1993-------2.7-----------9.7
1994-------2.7---------(-2.9)
1995-------2.5----------18.5
1996-------3.3-----------3.6
1997-------1.7-----------9.7
1998-------1.6-----------8.7
1999-------2.7---------(-0.8)
2000-------3.4----------11.6
2001-------1.6-----------8.4
2002-------2.4----------10.3
2003-------1.9-----------4.1
2004-------3.3-----------4.3
2005-------3.4-----------2.4
2006-------2.5-----------4.3
2007-------4.1-----------7.0
2008-------0.1-----------5.2
2009-------2.7-----------5.9
2010-------1.5-----------6.5
2011-------3.0-----------7.7
2012-------1.7-----------4.3
Source: U.S. Department of Labor and Barclays

Observations:
* Inflation increased from 4.9% in 1976 to 13.3% in 1979; nevertheless the Index had positive returns during that period of rising inflation.
* The Index had only two negative years (both small) reflecting low risk.

Past performance does not guarantee future performance.

from viewtopic.php?t=110077
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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Explorer » Mon Dec 26, 2016 9:33 pm

arcticpineapplecorp. wrote:
Explorer wrote:For the past years - where cheap credit was available - this comparison worked. I don't think it will once interest rates start resetting higher as anticipated.
PIMIX is a high-octane, multi-sector bond fund where it takes a lot of credit risk across the quality spectrum but it manages duration well with credit swaps and such derivatives (at times it will have negative duration).

TBM has a mandate on duration, which really hurt it in the recent past and will continue to hurt TBM every time there is a sudden move up in interest rates.

Make no mistake - TBM will be volatile as rates start rising.

Volatile, maybe. But the returns were still positive in the past during times of rising rates. See Taylor's post below. The late 70s and early 80s were a time of inflation and rising rates as Former Fed Chief Paul Volcker raised rates to choke off inflation. Only negative years were 1994 and 1999.

Vanguard's Total Bond Market Index Fund was started by Jack Bogle in December, 1986. It is a very diversified, high-quality, intermediate-term bond index fund that tracks Barclays US Aggregate Bond Index (formerly the Lehman Aggregate Bond Index created in 1976). Jack's invention is now the world's largest bond index fund.


Observations:
* Inflation increased from 4.9% in 1976 to 13.3% in 1979; nevertheless the Index had positive returns during that period of rising inflation.
* The Index had only two negative years (both small) reflecting low risk.

Past performance does not guarantee future performance.

from viewtopic.php?t=110077


arctic - Some things are way different now compared to prior inflationary periods... one for instance is that China & Japan hold so much of US Treasuries (and US national debt has ballooned beyond belief). What do you think caused a 4% drop in TBM in a few short weeks recently? Interest rate expectations? No.. China dumping US Treasuries in the market.

The bane of TBM is it holds a large share of US treasuries - funny that risk-free assets actually add risk to it.

I am not kidding myself with the view that TBM will react the same way to inflation the way it did in the past. Just my 2 cents.

There are modern portfolio management techniques available in the FI space (such as what PIMIX utilizes)- and you pay higher ER - I believe they are worth every penny.

Full disclosure: I hold quite a bit of TBM but I also augment with active bond funds in my portfolio, one could call that additional diversification.

Best regards.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby LadyGeek » Tue Dec 27, 2016 9:18 am

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Doc » Tue Dec 27, 2016 10:15 am

BlueEars wrote:I don't follow you Doc. From 4/1/16 to now, VCOBX (core bond) has outperformed VBTLX (total bond) by a small amount.

Depends what the meaning of now is now. :D

Period 4/1/2016 to 12/26/16 growth of 10K

VCOBX: $9936
BB-AGG: $9897

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Endpoints matter sometimes.

BlueEars wrote:What would you select in place of VCOBX?

I have no opinion because I like to have ten years data to make that kind of decision not ten months.

If I wanted higher return than TBM there are a lot of options all with varying degrees than a TBM index fund. For my purposes I use iShares Intermediate Credit Bond ETF CIU as my bogey: M* credit rating of A compared to Vg TBM (BND) of AA and durations of 4.3 and 5.9 respectively. No securitized obligations in CIU.

(I slice and dice the CIU portfolio for tax purposes so I don't actually own CIU itself and I expect it will have a lower return than TBM because of the duration but it has been actually higher for the last ten years due to the lower credit quality I guess.)

Thanks BlueEars, I had never actually compared the return of CIU with VBTLX before today.
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Re: Managed Fixed Income Funds vs. Index Fixed Income Funds

Postby Doc » Tue Dec 27, 2016 10:22 am

Taylor Larimore wrote:
Doc wrote:Unlike ofcmetz and Taylor I believe that active management in fixed income does not suffer from the high management cost and high transaction costs that you get in equity funds.

Doc:

According to the S&P Dow Jones Indices Scorecard (Report 11), during the past 10 years, managed fixed-income funds underperformed their index benchmark in all 13 fixed-income categories.

2016 mid-year SPIVA Report 11

Happy Holidays!
Taylor

S&P has a bias for index funds because it charges them to use their index.

William Sharpe wrote:(1) before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar and

(2) after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar

http://www.stanford.edu/~wfsharpe/art/active/active.htm

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Tue Dec 27, 2016 12:06 pm

Explorer wrote:By the way, there are other funds such as unconstrained active bond funds that should be examined as well.


I would like to do a comparison. Which particular bond funds are you referring to?
Last edited by joer1212 on Tue Dec 27, 2016 12:26 pm, edited 1 time in total.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby joer1212 » Tue Dec 27, 2016 12:19 pm

Explorer wrote:TBM has a mandate on duration, which really hurt it in the recent past and will continue to hurt TBM every time there is a sudden move up in interest rates.

Make no mistake - TBM will be volatile as rates start rising.


Isn't this already priced in?

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Explorer » Tue Dec 27, 2016 12:51 pm

joer1212 wrote:
Explorer wrote:By the way, there are other funds such as unconstrained active bond funds that should be examined as well.


I would like to do a comparison. Which particular bond funds are you referring to?


PMZIX/DFLEX

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Explorer » Tue Dec 27, 2016 1:02 pm

joer1212 wrote:
Explorer wrote:TBM has a mandate on duration, which really hurt it in the recent past and will continue to hurt TBM every time there is a sudden move up in interest rates.

Make no mistake - TBM will be volatile as rates start rising.


Isn't this already priced in?


I don't think so. Bonds/funds are so over-valued that each hike in interest rates will cause NAV to drop much larger than the rule of thumb "each 1% hike in the rates causes NAV to lose value by x% where x is the duration in years."

If you look at 4Q action in fixed-duration funds you will notice that a 0.25% hike in interest rates caused much higher loss in those funds. Even Bogle lamented in 2014 that TBM has about 70% allocation to US govt bonds (treasuries/agencies) - which is not a good diversification. Long duration treasuries fund lost 12% instead of the expected 3% (12 years duration X 1/4 point hike) in light of recent rate hike.

In a nutshell, passive bond funds will have to normalize/deflate for a while before we can forecast the likely impact of higher rates on them using the rule of thumb. That precisely is the risk with TBM.

Best Regards.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Nova1967 » Tue Dec 27, 2016 1:14 pm

Since Bill Gross departed I believe Pimco has gone down hill. Much of Pimcos success was a result of Bill Gross rein as the bond King, A couple of years ago he jumped ship and went to Janus.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Explorer » Tue Dec 27, 2016 1:27 pm

Nova1967 wrote:Since Bill Gross departed I believe Pimco has gone down hill. Much of Pimcos success was a result of Bill Gross rein as the bond King, A couple of years ago he jumped ship and went to Janus.


Not sure this is correct. Please examine the performance of their funds to validate your statement.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby lack_ey » Tue Dec 27, 2016 1:43 pm

garlandwhizzer wrote: It is important to recall that in most of those years this fund was run by a manager, Bill Gross, who is no longer with Pimco.

As far as I can tell, Bill Gross never directly ran PIMCO Income (never listed as a portfolio manager). I guess he may have shaped PIMCO's thinking significantly and this trickles to other funds, but a lot of PIMCO Income is in sectors/strategies that I don't think particularly overlap with Gross.

Explorer wrote:
lack_ey wrote:
Explorer wrote:I hold PIMIX and view it as a balanced fund more so than a bond fund...something like a 60/40 fund.

I personally don't think it is fair to compare PIMIX with a TBM fund -- they are different animals.

joer1212 wrote:This is exactly why I believe that, if you're going to include low quality bond funds at all, they should be considered part of your equity allocation. They should not be counted as part of the fixed income portion of your portfolio, since they are more correlated with stocks and don't offer much diversification. So, now the question becomes, is it worth it to include PIMIX in lieu of VTSAX (Vanguard Total Stock Market Index) for at least a portion of your portfolio?

But does it actually behave even partially like stocks? How much? What are its underlying risks and how do they fare under different equity regimes?


If you observe the SD, sharpe/sortino ratios, and correlation of PIMIX with the stock market you will be able to answer your questions yourself.

I did and I'm not seeing it, hence why I asked. Correlation of daily returns has been close to 0 with the stock market. That's certainly higher than the negative figures you see with total bond over the same period. There's not much relationship if you look at beta to the stock market or anything else like that. Monthly and yearly return correlations are higher but that data is noisier.

What are you looking at? What does Sharpe ratio have to do with that?

Other reasons why I asked is because historical data doesn't necessarily reflect the current portfolio, and all we see in the record is the realized performance and not what could happen (if let's say there's a left tail that correlates with the stock market sometimes and we haven't come across it yet, the historical figures would be misleading). I figure someone who's been following the fund more closely may know more qualitatively how the risks and positions it's taken may go under different regimes for stock market performance.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Explorer » Tue Dec 27, 2016 7:30 pm

lack_ey wrote:
garlandwhizzer wrote: It is important to recall that in most of those years this fund was run by a manager, Bill Gross, who is no longer with Pimco.

As far as I can tell, Bill Gross never directly ran PIMCO Income (never listed as a portfolio manager). I guess he may have shaped PIMCO's thinking significantly and this trickles to other funds, but a lot of PIMCO Income is in sectors/strategies that I don't think particularly overlap with Gross.

Explorer wrote:
lack_ey wrote:
Explorer wrote:I hold PIMIX and view it as a balanced fund more so than a bond fund...something like a 60/40 fund.

I personally don't think it is fair to compare PIMIX with a TBM fund -- they are different animals.

joer1212 wrote:This is exactly why I believe that, if you're going to include low quality bond funds at all, they should be considered part of your equity allocation. They should not be counted as part of the fixed income portion of your portfolio, since they are more correlated with stocks and don't offer much diversification. So, now the question becomes, is it worth it to include PIMIX in lieu of VTSAX (Vanguard Total Stock Market Index) for at least a portion of your portfolio?

But does it actually behave even partially like stocks? How much? What are its underlying risks and how do they fare under different equity regimes?


If you observe the SD, sharpe/sortino ratios, and correlation of PIMIX with the stock market you will be able to answer your questions yourself.

I did and I'm not seeing it, hence why I asked. Correlation of daily returns has been close to 0 with the stock market. That's certainly higher than the negative figures you see with total bond over the same period. There's not much relationship if you look at beta to the stock market or anything else like that. Monthly and yearly return correlations are higher but that data is noisier.

What are you looking at? What does Sharpe ratio have to do with that?

Other reasons why I asked is because historical data doesn't necessarily reflect the current portfolio, and all we see in the record is the realized performance and not what could happen (if let's say there's a left tail that correlates with the stock market sometimes and we haven't come across it yet, the historical figures would be misleading). I figure someone who's been following the fund more closely may know more qualitatively how the risks and positions it's taken may go under different regimes for stock market performance.


I am not following your nuanced questions - when I backtest PIMIX with say VTI, I get a correlation of 47% (unlike a classic bond fund with negative correlation), and the SD is lower than VTI with overall returns better than VTI (of course PIMIX only has had a few years of existence).

The contents of PIMIX are multi-sector bonds - with leverage, hedges and swaps. Turnover has been around 50% for the last several years.

Could it work in the future the way it did in the past? no one exactly knows but one would hope that active interventionist techniques are likely to work since their only mandate is to produce income and actively manage credit quality and duration.

TBM is a plane on auto-pilot in my view while PIMIX has both manual pilots and active instrumentation. Just because TBM worked in the past doesn't guarantee that it will work in the future. I do not mean to offend any bogleheads - advance apologies.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby lack_ey » Tue Dec 27, 2016 8:03 pm

Explorer wrote:I am not following your nuanced questions - when I backtest PIMIX with say VTI, I get a correlation of 47% (unlike a classic bond fund with negative correlation), and the SD is lower than VTI with overall returns better than VTI (of course PIMIX only has had a few years of existence).

Correlation of what? Monthly returns? Yearly returns? Like I said, I already saw those were higher but it's not the case for correlation of daily returns, which calls that into question. Also, as previously discussed the fund's return history doesn't really regress on stock market beta either (even looking at monthly returns), certainly less than even a 20% stock fund like Vanguard LifeStrategy Income.

How do you explain these monthly or yearly correlations being higher when the correlation of daily returns is basically zero? Is that by chance or do you think the daily result is maybe wrong? For example, a measurement artifact from NAV reflecting stale bond price data? I don't know, just guessing. Do you?

Standard deviation, sure, we can all see that's lower than stocks by a lot. The question that isn't answered as well is how much of the underlying performance is stocklike and related to equity risk. For example, a balanced stock and bond fund doesn't diversify a stock and bond portfolio. If analyzing if something is potentially diversifying you need to understand what the returns are related to and why, what could go right and wrong and how they mix with other other investments.

Explorer wrote:The contents of PIMIX are multi-sector bonds - with leverage, hedges and swaps. Turnover has been around 50% for the last several years.

This is true enough but everybody who looked at this for a few minutes already saw this and it doesn't relate to the question.

Explorer wrote:Could it work in the future the way it did in the past? no one exactly knows but one would hope that active interventionist techniques are likely to work since their only mandate is to produce income and actively manage credit quality and duration.

A lot of active funds with broad mandates attempt much the same and don't succeed. What's different or similar here?

Explorer wrote:TBM is a plane on auto-pilot in my view while PIMIX has both manual pilots and active instrumentation. Just because TBM worked in the past doesn't guarantee that it will work in the future. I do not mean to offend any bogleheads - advance apologies.

You don't need to apologize for having a different opinion from others. I'd just personally appreciate hearing more about it.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby Explorer » Tue Dec 27, 2016 8:50 pm

lack_ey wrote:
How do you explain these monthly or yearly correlations being higher when the correlation of daily returns is basically zero? Is that by chance or do you think the daily result is maybe wrong? For example, a measurement artifact from NAV reflecting stale bond price data? I don't know, just guessing. Do you?


I think daily results are not indicative of correlation, you need a set of data points to compute correlation. For ex: for all of 2016 the correlation between PIMIX and VTI was 48%; for 2 years correlation was 70%; for 3 years correlation was 59%; 4 years it was 54%; 5 years it was 49% - so correlation between these two investments changes based on time frame. It is futile to extrapolate daily relationships in to a trend of correlations.

lack_ey wrote:Standard deviation, sure, we can all see that's lower than stocks by a lot. The question that isn't answered as well is how much of the underlying performance is stocklike and related to equity risk. For example, a balanced stock and bond fund doesn't diversify a stock and bond portfolio. If analyzing if something is potentially diversifying you need to understand what the returns are related to and why, what could go right and wrong and how they mix with other other investments.


Bonds inherently diversify when mixed with stocks - what PIMIX has proved is that there is a way to actively mix different sectors of bonds/instruments up to generate additional gains "alpha" when compared to TBM or other similar fixed-duration bond funds with credit quality mandate.

lack_ey wrote:A lot of active funds with broad mandates attempt much the same and don't succeed. What's different or similar here?


A lot of active funds don't succeed - but this puppy did. That is the point. Who knows what it will do in the future?

lack_ey wrote:You don't need to apologize for having a different opinion from others. I'd just personally appreciate hearing more about it.


Thanks.

Hope this helps.

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Re: Pimco Income Fund vs. Vanguard Total Bond Market

Postby lack_ey » Tue Dec 27, 2016 9:21 pm

Actually, looking some more at the data, it looks like correlations between PIMCO Income and stocks are higher recently than they were over the full period since inception so I think that does explain some things and my impressions before were wrong. So now it is more like stocks. But this seems mostly via the moderate high yield exposure rather than something on top of that. Maybe.

Explorer wrote:
lack_ey wrote:
How do you explain these monthly or yearly correlations being higher when the correlation of daily returns is basically zero? Is that by chance or do you think the daily result is maybe wrong? For example, a measurement artifact from NAV reflecting stale bond price data? I don't know, just guessing. Do you?


I think daily results are not indicative of correlation, you need a set of data points to compute correlation. For ex: for all of 2016 the correlation between PIMIX and VTI was 48%; for 2 years correlation was 70%; for 3 years correlation was 59%; 4 years it was 54%; 5 years it was 49% - so correlation between these two investments changes based on time frame. It is futile to extrapolate daily relationships in to a trend of correlations.

We're talking about standard Pearson product-moment correlation coefficients, right? Calculated based on the samples? You need two data sets. Which are the ones you're talking about for those figures? Did you run the calculations yourself?

Usually in this context the data sets are the daily, weekly, monthly, or yearly returns for assets X and Y over a period of time from A to B (usually B being the present). I think by 2 years, 3 years, or 4 years you're talking about how far back A is compared to B. That is, the start and end of the dataset. Correct me if I'm wrong.

I'm asking about whether the underlying data points are daily returns (1 for each trading day, so around 251 per year), weekly, monthly, or yearly. Probably not yearly if you're only looking two years back. That is, looking back the last 2 years, if you look at the sequence of daily returns then you have about 500 data points for X and Y each. Run the calculation for that. If you instead look at the sequence of monthly returns then you're looking at 24 data points for X and Y each. This will give you a different result.

Maybe I've completely misunderstood what you've meant, but that last response didn't make sense to me.

Explorer wrote:
lack_ey wrote:Standard deviation, sure, we can all see that's lower than stocks by a lot. The question that isn't answered as well is how much of the underlying performance is stocklike and related to equity risk. For example, a balanced stock and bond fund doesn't diversify a stock and bond portfolio. If analyzing if something is potentially diversifying you need to understand what the returns are related to and why, what could go right and wrong and how they mix with other other investments.


Bonds inherently diversify when mixed with stocks - what PIMIX has proved is that there is a way to actively mix different sectors of bonds/instruments up to generate additional gains "alpha" when compared to TBM or other similar fixed-duration bond funds with credit quality mandate.

Bonds do not inherently diversify when mixed with stocks. Or at least it depends on which bonds how much that's true. Convertible bonds are a lot less diversifying than Treasury bonds. To understand the past and future behavior it's worth trying to determine quantitatively and qualitatively the nature of the relationship here with PIMCO's fund.

It is always possible to have alpha over any given period from investing in the right area and/or market timing that worked. It's not much interesting or notable in of itself that a fund happened to succeed. What people are trying to figure out is an estimate of future alpha and behavior because obviously nobody can invest in the past success anymore.

Explorer wrote:
lack_ey wrote:A lot of active funds with broad mandates attempt much the same and don't succeed. What's different or similar here?


A lot of active funds don't succeed - but this puppy did. That is the point. Who knows what it will do in the future?

Again, the point of all these questions is to guess the future behavior. We know the average fund can't cover its costs, so why use this one as opposed to others? Unless it's a blind guess it's based on some understanding, so what is that analysis? What does it do that others don't? What's more likely to happen here under a high inflationary environment, under high growth, or let's say low growth? What are the managers focused on, and what might they be good or not good at?


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