Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

[TeeDee]

I’m thinking of going 100% PSLDX (PIMCO StocksPLUS Long Duration Fund) for my entire portfolio. I like the fact that I get both stocks and bonds in one handy package and I think of it as the ultimate balanced portfolio. I feel like I understand both the risks and how the fund works. I would love to get feedback from the forum before going ahead with such a step.

Thanks

[Brianmcg321]

With a 1.11% expense ratio?

Why not use the Balanced Index?

Or a Life Strategy Fund?

[dukeblue219]

It's expensive and complex. Do you understand clearly what they're doing with S&P 500 derivatives? I don't. It also has a fixed AA that may not suit most investors.

One thing you like is that you get stocks and bonds in one handy package. That saves you about 1 minute of work. It's a REALLY minor reason to pick this fund, but it sounds like you value simplicity and want a portfolio you can safely ignore. Is a fund deeply invested in derivatives really compatible with that desire for simplicity?

Im sure it's probably going to work a lot better than the haphazard way many people "invest" by churning through the stock of week, and it's surely a lot better than no retirement plan at all, but is it better than a nearly-free two or three fund portfolio?

[airshow]

wouldn't touch that with a 10 ft pole.

Lost me at 1.11% e/r and 144% turnover without looking at anything else

[MotoTrojan]

It’s so tax inefficient most brokerages wouldn’t let you hold it in taxable (double digit % annual distributions).

Interesting fund but for as well as it’s done since inception, it can move the other direction quickly if rates go up.

[HEDGEFUNDIE]

wouldn't touch that with a 10 ft pole.

Lost me at 1.11% e/r and 144% turnover without looking at anything else

Then you are missing out

https://www.portfoliovisualizer.com/fun ... chmark=VTI

[Ferdinand2014]

I would never consider what you are proposing.

[HEDGEFUNDIE]

OP I do use PSLDX as my core US holding. The only reason it is not my only holding is I diversify with utilities and international.

[TeeDee]

Makes sense.

[Elysium]

OP I do use PSLDX as my core US holding. The only reason it is not my only holding is I diversify with utilities and international.

Are your utilities and international leveraged too? if not why not?

[HEDGEFUNDIE]

OP I do use PSLDX as my core US holding. The only reason it is not my only holding is I diversify with utilities and international.

Are your utilities and international leveraged too? if not why not?

I hold a $1M mortgage so they absolutely are.

[rascott]

I’m thinking of going 100% PSLDX for my entire portfolio. I like the fact that I get both stocks and bonds in one handy package and I think of it as the ultimate balanced portfolio. I feel like I understand both the risks and how the fund works. I would love to get feedback from the forum before going ahead with such a step.

Thanks

If you REALLY understand the risks.... it's a great fund. Have a large slug myself. But there are risks that come with a leveraged fund like this.

It can only be held in tax advantaged accounts. Don't try it in taxable.

[Elysium]

OP I do use PSLDX as my core US holding. The only reason it is not my only holding is I diversify with utilities and international.

Are your utilities and international leveraged too? if not why not?

I hold a $1M mortgage so they absolutely are.

What do you mean? your mortgage is separate from your investment in PSLDX, since that is levered why not do the same to your investments in utilities and international too? after all the link you posted shows double returns, why are you missing out on double returns from one part of your portfolio.

[mr.masku]

My tax-advantaged accounts are 100% PSLDX. This fund makes a lot of sense to me.
I am gradually moving to NTSX in my taxable account.

[firebirdparts]

I have it as a core holding in a Fido 401k, but I am not quite brave enough to go 100%. The returns since inception have been pretty incredible. In my asset allocation I consider it to be an overperforming USA large cap equity holding. If it loses the advantage of falling interest rates, then I think the returns might drop down to where the S&P 500 is.

You might want to look at their bond portfolio and think it over. They have long duration bonds and quite a bit of that stuff is high-yielding. So there is interest rate risk, obviously, bond defaults here and there on a normal day, and I suppose on these derivatives there might be some counterparty risk.

The other stocksplus(tm) funds aren't comparable to it in terms of performance.

[willthrill81]

OP I do use PSLDX as my core US holding. The only reason it is not my only holding is I diversify with utilities and international.

Are your utilities and international leveraged too? if not why not?

I hold a $1M mortgage so they absolutely are.

What do you mean? your mortgage is separate from your investment in PSLDX...

Yes, but all leverage is is debt. It doesn't matter whether the debt is secured by a house or not. And it doesn't matter whether the debt is 'inside' your portfolio in the form of a leveraged ETF or 'outside' your portfolio in the form of a mortgage. It's all debt, and it's all leverage.

By not paying cash for his house, he's able to put more capital toward all of his investments, including utilities and international.

[MoneyMarathon]

I’m thinking of going 100% PSLDX for my entire portfolio. I like the fact that I get both stocks and bonds in one handy package and I think of it as the ultimate balanced portfolio. I feel like I understand both the risks and how the fund works. I would love to get feedback from the forum before going ahead with such a step.

Thanks

100% PSLDX may be suitable for you if:

(1) You want your US-International split to be 100% US and 0% international.
(2) You want exposure to US stock through derivatives equivalent to investing 100% of net assets in the S&P 500.
(3) You want your bond duration to be 10 years or more (currently, a duration of around 15 years).
(4) You're okay with leverage that is currently about 2.55x (about 155% bonds) that can vary.
(5) You're okay with a treasury bond percentage that is currently about 40% and that can vary.
(6) You're okay with investing up to 10% of total assets in junk bonds, up to 30% of total assets in foreign currency bonds, and up to 10% of total assets in preferred securities, as chosen by active management. In general, you're okay with the active fixed income management.
(7) You're not afraid to pay a 0.59% management fee and the costs of leverage (both those included and not included in the 1.11% expense ratio), in exchange for higher risk & return through leverage. You also know you don't want to trade derivates directly.
(8) You're not worried about the manager risk.
(9) Your annual savings don't exceed your available tax-advantaged space.

The ratio of stocks to bonds (1:1.55) makes this something close to a leveraged 35-65 or 30-70 portfolio, but the big bond allocation behaves a lot differently than a portfolio with 70% treasury bonds because of the credit quality of the bonds. In any case, it's the kind of portfolio that has high Sharpe, historically, and it's not a bad portfolio to leverage up. You could do a lot worse.

Even so, I think you could improve on it by adding some international stock. Averaging in international reduces the probability of both very good and very bad returns from equities. Lowering leverage a little bit also reduces risk.

If you're going to need the money anytime soon, then it's a pretty aggressive portfolio. It is somewhat more aggressive than just being 100% stocks, since it also has higher expenses, leverage costs, and adds the risks of the bonds on top. It has no inflation-protected bonds, and at the same time unexpected inflation that leads to higher yields will hurt the long duration bonds that it loads up on. You can only buy so much in I Series savings bonds per year, which currently have good terms for an inflation-protected bond, so you might want to consider doing some of that too.

[Elysium]

OP I do use PSLDX as my core US holding. The only reason it is not my only holding is I diversify with utilities and international.

Are your utilities and international leveraged too? if not why not?

I hold a $1M mortgage so they absolutely are.

What do you mean? your mortgage is separate from your investment in PSLDX...

Yes, but all leverage is is debt. It doesn't matter whether the debt is secured by a house or not. And it doesn't matter whether the debt is 'inside' your portfolio in the form of a leveraged ETF or 'outside' your portfolio in the form of a mortgage. It's all debt, and it's all leverage.

By not paying cash for his house, he's able to put more capital toward all of his investments, including utilities and international.

That's all fine. Still makes no sense why leave double returns by further leveraging utilities and international just like PSLDX. Perhaps he hasn't found a good way to do that with available ETFs? I can accept that. But going by the logic he used to point to VTI vs PSLDX would make one imagine not leveraging other two are missing out on more returns.

[willthrill81]

Are your utilities and international leveraged too? if not why not?

I hold a $1M mortgage so they absolutely are.

What do you mean? your mortgage is separate from your investment in PSLDX...

Yes, but all leverage is is debt. It doesn't matter whether the debt is secured by a house or not. And it doesn't matter whether the debt is 'inside' your portfolio in the form of a leveraged ETF or 'outside' your portfolio in the form of a mortgage. It's all debt, and it's all leverage.

By not paying cash for his house, he's able to put more capital toward all of his investments, including utilities and international.

That's all fine. Still makes no sense why leave double returns by further leveraging utilities and international just like PSLDX. Perhaps he hasn't found a good way to do that with available ETFs? I can accept that. But going by the logic he used to point to VTI vs PSLDX would make one imagine not leveraging other two are missing out on more returns.

I suspect that leveraged ETFs covering utilities and international are just not available. But I would suspect that one for the latter might come around soon. The problem is that the returns for the last 20 years would have been terrible. The drawdown from Oct., 2007, to Mar., 2009, would have been atrocious.

[LFKB]

Can someone explain the fund to me in laymen’s terms? I read the fact sheet and it wasn’t straight forward.

Is it 85% levered (2x?) SP500 and 15% long term bonds? That’s gonna work pretty great in the declining interest rate high stock returns market we’ve had the last 10+ years.

[HEDGEFUNDIE]

I hold a $1M mortgage so they absolutely are.

What do you mean? your mortgage is separate from your investment in PSLDX...

Yes, but all leverage is is debt. It doesn't matter whether the debt is secured by a house or not. And it doesn't matter whether the debt is 'inside' your portfolio in the form of a leveraged ETF or 'outside' your portfolio in the form of a mortgage. It's all debt, and it's all leverage.

By not paying cash for his house, he's able to put more capital toward all of his investments, including utilities and international.

That's all fine. Still makes no sense why leave double returns by further leveraging utilities and international just like PSLDX. Perhaps he hasn't found a good way to do that with available ETFs? I can accept that. But going by the logic he used to point to VTI vs PSLDX would make one imagine not leveraging other two are missing out on more returns.

I suspect that leveraged ETFs covering utilities and international are just not available. But I would suspect that one for the latter might come around soon. The problem is that the returns for the last 20 years would have been terrible. The drawdown from Oct., 2007, to Mar., 2009, would have been atrocious.

UPW has actually performed as expected through the Great Recession and afterward.

[HEDGEFUNDIE]

Can someone explain the fund to me in laymen’s terms? I read the fact sheet and it wasn’t straight forward.

Is it 85% levered (2x?) SP500 and 15% long term bonds? That’s gonna work pretty great in the declining interest rate high stock returns market we’ve had the last 10+ years.

100% S&P 500
100% Long term bonds (corporate + treasuries, actively managed)
-100% Cash

https://www.portfoliovisualizer.com/bac ... ion4_2=100

[MoneyMarathon]

why are you missing out on double returns from one part of your portfolio

Derivatives can be very cheap "loans"/leverage because the default risk (counterparty risk) is minimized by the exchange. Access to them mostly just requires that you want to trade the underlying. Implied interest rates are very low on treasury derivatives, a bit higher on the S&P 500. Trading costs are low on treasuries and the S&P 500 because of how liquid they are / how much trading there is. The S&P 500 is sort of the anomaly in equity markets in having a very liquid product, high historical returns, and low historical volatility. If you don't have all those in place, a fixed ratio leverage investment could be very inefficient - the path dependency of the leveraged product introduces volatility decay, and there are higher trading costs, eroding risk-adjusted return. You might not want to get that exposure in a leveraged ETF or mutual fund.

Someone could still hit an overall leverage target, some other way, with some other loan (or maybe they want to deleverage, more isn't always better).

[MoneyMarathon]

Can someone explain the fund to me in laymen’s terms? I read the fact sheet and it wasn’t straight forward.

Is it 85% levered (2x?) SP500 and 15% long term bonds? That’s gonna work pretty great in the declining interest rate high stock returns market we’ve had the last 10+ years.

100% S&P 500
100% Long term bonds (corporate + treasuries, actively managed)
-100% Cash

https://www.portfoliovisualizer.com/bac ... ion4_2=100

It's fascinating how close those are. I would think that could be their post-expenses, post-costs target.

Due to management expenses (0.59%) and leverage costs / shorting costs that are above CASHX (1 month T-bills), the risk profile and actual portfolio is more than 100% long term bonds, even though the returns historically seem to be almost exactly like using 100% BLV if you could simply borrow at that rate. This implies that, if long duration bonds do poorly, the PSLDX portfolio will underperform the hypothetical 100% VOO / 100% BLV / -100% CASHX portfolio, since it will be losses that are magnified instead of gains (and the expenses will still be there).

[mr.masku]

The average duration of the bond portfolio of PSDLX is likely in the 14-15 year range. This is my estimate based on how well the bond portion tracks BLV and VWESX. To offset this long duration, you could consider having other bond holdings in your portfolio tilted towards lower duration.

[willthrill81]

What do you mean? your mortgage is separate from your investment in PSLDX...

Yes, but all leverage is is debt. It doesn't matter whether the debt is secured by a house or not. And it doesn't matter whether the debt is 'inside' your portfolio in the form of a leveraged ETF or 'outside' your portfolio in the form of a mortgage. It's all debt, and it's all leverage.

By not paying cash for his house, he's able to put more capital toward all of his investments, including utilities and international.

That's all fine. Still makes no sense why leave double returns by further leveraging utilities and international just like PSLDX. Perhaps he hasn't found a good way to do that with available ETFs? I can accept that. But going by the logic he used to point to VTI vs PSLDX would make one imagine not leveraging other two are missing out on more returns.

I suspect that leveraged ETFs covering utilities and international are just not available. But I would suspect that one for the latter might come around soon. The problem is that the returns for the last 20 years would have been terrible. The drawdown from Oct., 2007, to Mar., 2009, would have been atrocious.

UPW has actually performed as expected through the Great Recession and afterward.

Interesting.

Actually, I just did a backtest of 90% VGTSX (ex-U.S. TSM), 60% VUSTX (LTT), and -50% cash, and the returns were actually decent.

[stormcrow]

I suspect that leveraged ETFs covering utilities and international are just not available. But I would suspect that one for the latter might come around soon. The problem is that the returns for the last 20 years would have been terrible. The drawdown from Oct., 2007, to Mar., 2009, would have been atrocious.

Another PIMCO Plus fund does cover international (PISIX). I am thinking of adding it, as I have a little bit of tax advantaged space still.

[columbia]

Yes, but all leverage is is debt. It doesn't matter whether the debt is secured by a house or not. And it doesn't matter whether the debt is 'inside' your portfolio in the form of a leveraged ETF or 'outside' your portfolio in the form of a mortgage. It's all debt, and it's all leverage.

By not paying cash for his house, he's able to put more capital toward all of his investments, including utilities and international.

That's all fine. Still makes no sense why leave double returns by further leveraging utilities and international just like PSLDX. Perhaps he hasn't found a good way to do that with available ETFs? I can accept that. But going by the logic he used to point to VTI vs PSLDX would make one imagine not leveraging other two are missing out on more returns.

I suspect that leveraged ETFs covering utilities and international are just not available. But I would suspect that one for the latter might come around soon. The problem is that the returns for the last 20 years would have been terrible. The drawdown from Oct., 2007, to Mar., 2009, would have been atrocious.

UPW has actually performed as expected through the Great Recession and afterward.

Interesting.

Actually, I just did a backtest of 90% VGTSX (ex-U.S. TSM), 60% VUSTX (LTT), and -50% cash, and the returns were actually decent.

The international version also has international bonds, so you’d want to factor that.

[firebirdparts]

Another PIMCO Plus fund does cover international (PISIX). I am thinking of adding it, as I have a little bit of tax advantaged space still.

None of their other stocksplus funds really perform at all the same. FWIW. Look at what they are all trying to track.

[rascott]

Another PIMCO Plus fund does cover international (PISIX). I am thinking of adding it, as I have a little bit of tax advantaged space still.

None of their other stocksplus funds really perform at all the same. FWIW. Look at what they are all trying to track.

None of the other stocks plus funds use long duration..... so they basically need to find bonds that exceed the cost of the SP500 derivatives. That's not an easy thing to achieve... pls cover the ER.

[firebirdparts]

P.S. In the HF thread there was quite a bit of back-and-forth about simulating it over a longer time frame. My personal lazy favorite is:

100% VWESX
100% VFINX
-100% CashX

This will take you all the way back to 1985 which is as far as you can go with PV built-in data. You'll agree this seems dull.

If it helps, it was pointed out also that PSLDX is also:
35% UPRO
20% TMF
45% VCLT.

You might ask yourself whether you'd use this as your entire portfolio, but obviously the counterparty risks are very different. Statistics might be the same, though.

[Ramjet]

I use PSLDX in my IRA's and TSM in other accounts where it's not available

Due to a change in jobs and a 401K rollover to an IRA, most of my U.S. AA in in PSLDX

[Ramjet]

I suspect that leveraged ETFs covering utilities and international are just not available. But I would suspect that one for the latter might come around soon. The problem is that the returns for the last 20 years would have been terrible. The drawdown from Oct., 2007, to Mar., 2009, would have been atrocious.

Another PIMCO Plus fund does cover international (PISIX). I am thinking of adding it, as I have a little bit of tax advantaged space still.

I think that is the currency hedged one, PSKIX is unhedged

[Ramjet]

If it loses the advantage of falling interest rates, then I think the returns might drop down to where the S&P 500 is

If rates stay low long term I would think it would still outperform the S&P by a few percentage points

Curious to hear others thoughts as well

[nisiprius]

wouldn't touch that with a 10 ft pole.

Lost me at 1.11% e/r and 144% turnover without looking at anything else

Then you are missing out

https://www.portfoliovisualizer.com/fun ... chmark=VTI

I would have phrased that as "then you would have missed out."

[1789]

You mentioned you understand how it works and if you already spend time on understanding corner cases (aka: cases where it can go broke) then i don't see a problem. I personally don't understand how these funds work and i am being honest with myself.

[TeeDee]

Thank you for all the helpful replies.

[abuss368]

I’m thinking of going 100% PSLDX for my entire portfolio. I like the fact that I get both stocks and bonds in one handy package and I think of it as the ultimate balanced portfolio. I feel like I understand both the risks and how the fund works. I would love to get feedback from the forum before going ahead with such a step.

Thanks

What is PSLDX? You may want to consider editing the post to list the fund name as many investors do not memorize ticker symbols.

[abuss368]

Leverage can work great and to the investors benefit in a rising market. In a down market it can crush you.

[TeeDee]

I have edit edited the original post to include the fund name.

I am considering keeping some in a taxable account. For many this would be quite silly due to the large distributions thrown off which would create a tremendous tax drag on returns (possibly even negating the outperformance) but for myself in the 12% tax bracket I think the tax drag would be negligible.

Am I calculating correctly?

[firebirdparts]

You might want to ignore what people say about that and do your own math. If you want an investment that throws off double digit percentages in cash money, that's for you to decide.

[Lee_WSP]

I’m thinking of going 100% PSLDX for my entire portfolio. I like the fact that I get both stocks and bonds in one handy package and I think of it as the ultimate balanced portfolio. I feel like I understand both the risks and how the fund works. I would love to get feedback from the forum before going ahead with such a step.

Thanks

If you REALLY understand the risks.... it's a great fund. Have a large slug myself. But there are risks that come with a leveraged fund like this.

It can only be held in tax advantaged accounts. Don't try it in taxable.

This response.

[MoneyMarathon]

I have edit edited the original post to include the fund name.

I am considering keeping some in a taxable account. For many this would be quite silly due to the large distributions thrown off which would create a tremendous tax drag on returns (possibly even negating the outperformance) but for myself in the 12% tax bracket I think the tax drag would be negligible.

Am I calculating correctly?

Why do you want it in taxable, though?

If you have Roth space, wouldn't it be better there? You can still withdraw contribution amounts without penalty.

If it's an emergency fund, maybe you should buy something like I savings bonds. Both tax advantaged and principal protected.

[Lee_WSP]

I have edit edited the original post to include the fund name.

I am considering keeping some in a taxable account. For many this would be quite silly due to the large distributions thrown off which would create a tremendous tax drag on returns (possibly even negating the outperformance) but for myself in the 12% tax bracket I think the tax drag would be negligible.

Am I calculating correctly?

Why do you want it in taxable, though?

If you have Roth space, wouldn't it be better there? You can still withdraw contribution amounts without penalty.

If it's an emergency fund, maybe you should buy something like I savings bonds. Both tax advantaged and principal protected.

Agreed. How on Earth can you have no where else to put it? Unless you're retired in which case, it's a terrible idea.

[stormcrow]

Another PIMCO Plus fund does cover international (PISIX). I am thinking of adding it, as I have a little bit of tax advantaged space still.

None of their other stocksplus funds really perform at all the same. FWIW. Look at what they are all trying to track.

Yeah, this one isn't specifically long duration, which, depending on how rates go could help or hurt. It's intended to track the MSCI EAFE Index, and compared to unhedged it has massively overperformed. I am having a hard time finding currency hedged funds to compare against though, so if anyone knows any I'd appreciate it.

[MotoTrojan]

Leverage can work great and to the investors benefit in a rising market. In a down market it can crush you.

The equity exposure of this fund is not leveraged.

[HEDGEFUNDIE]

wouldn't touch that with a 10 ft pole.

Lost me at 1.11% e/r and 144% turnover without looking at anything else

Then you are missing out

https://www.portfoliovisualizer.com/fun ... chmark=VTI

I would have phrased that as "then you would have missed out."

...and continue to miss out.

[Lee_WSP]

Leverage can work great and to the investors benefit in a rising market. In a down market it can crush you.

The equity exposure of this fund is not leveraged.

It has a tiny 0.739% exposure to e-minis. Explains the extra 10% exposure it has vs NTSX. I wonder where the other 40% bond exposure comes from though. There's a lot of swaps in the holdings plus 6% of negative equity enabling them to have 106% of assets.

[MotoTrojan]

Leverage can work great and to the investors benefit in a rising market. In a down market it can crush you.

The equity exposure of this fund is not leveraged.

It has a tiny 0.739% exposure to e-minis. Explains the extra 10% exposure it has vs NTSX. I wonder where the other 40% bond exposure comes from though. There's a lot of swaps in the holdings plus 6% of negative equity enabling them to have 106% of assets.

I just meant if bonds have no return net expenses and the S&P500 crashes, PSLDX will not have a harder crash as alluded to.

[Lee_WSP]

Leverage can work great and to the investors benefit in a rising market. In a down market it can crush you.

The equity exposure of this fund is not leveraged.

It has a tiny 0.739% exposure to e-minis. Explains the extra 10% exposure it has vs NTSX. I wonder where the other 40% bond exposure comes from though. There's a lot of swaps in the holdings plus 6% of negative equity enabling them to have 106% of assets.

I just meant if bonds have no return net expenses and the S&P500 crashes, PSLDX will not have a harder crash as alluded to.

I get what you're saying now.