Why not 100% PSLDX?

[BullHouse_BearMarket]

I'm potentially interested in PSLDX as well. Do you know what happened to the fund on Dec 8th?

That was from the long and short term capital gains distributions. 49.6 cents/share were distributed. Assuming the dividend paid today is 16 cents, that puts the total dividends and gains distributions at just over $1/share for 2020.

[mwxlkn]

Got it. Thank you!

[mr.masku]

Basic question... why are the dividend distributions of PSLDX so high?

[rchmx1]

Basic question... why are the dividend distributions of PSLDX so high?

There's probably more to it, but the fund has around a 200% turnover, so I imagine that's a big part of the story.

[000]

Basic question... why are the dividend distributions of PSLDX so high?

Probably because a bunch of gains are generated whenever the derivatives are rolled? Just a guess.

[mr.masku]

Basic question... why are the dividend distributions of PSLDX so high?

Probably because a bunch of gains are generated whenever the derivatives are rolled? Just a guess.

That may explain the Cap Gains distribution, but not the high Dividend distribution?

[000]

Basic question... why are the dividend distributions of PSLDX so high?

Probably because a bunch of gains are generated whenever the derivatives are rolled? Just a guess.

That may explain the Cap Gains distribution, but not the high Dividend distribution?

Where are you seeing the distinction between Cap Gains and Dividends? On their site, all I see is combined distribution history.

[codoriti]

Basic question... why are the dividend distributions of PSLDX so high?

Probably because a bunch of gains are generated whenever the derivatives are rolled? Just a guess.

That may explain the Cap Gains distribution, but not the high Dividend distribution?

Where are you seeing the distinction between Cap Gains and Dividends? On their site, all I see is combined distribution history.

Schwab has a nice breakdown. Click on Dividends & Distributions and click the quarter -- https://www.schwab.wallst.com/Prospect/ ... mbol=PSLDX

[mr.masku]

Basic question... why are the dividend distributions of PSLDX so high?

Probably because a bunch of gains are generated whenever the derivatives are rolled? Just a guess.

That may explain the Cap Gains distribution, but not the high Dividend distribution?

Where are you seeing the distinction between Cap Gains and Dividends? On their site, all I see is combined distribution history.

Go to the fund page:
https://www.pimco.com/en-us/investments ... -fund/inst
And then click on the "Historical Prices" link.

In 2020 there were 4 dividend distributions and 1 cap gains distribution

[muffins14]

Could anyone provide an update on current transaction fees at Schwab and Ally for PSLDX? I'm planning to make a $6k contribution next week for a backdoor Roth contribution, and need to open the IRAs at a non-Fidelity account to start the purchase due to Fidelity's insane minimum requirement.

Last I saw, Schwab had a $1k minimum and "up to $50" fee, whereas Ally may have been as low as $10, and Etrade I believe was $20

[rchmx1]

Could anyone provide an update on current transaction fees at Schwab and Ally for PSLDX? I'm planning to make a $6k contribution next week for a backdoor Roth contribution, and need to open the IRAs at a non-Fidelity account to start the purchase due to Fidelity's insane minimum requirement.

Last I saw, Schwab had a $1k minimum and "up to $50" fee, whereas Ally may have been as low as $10, and Etrade I believe was $20

Schwab charges $49.95 per purchase. That's the only fee.

[Tingting1013]

2020 was another monster year for PSLDX. 36% return vs 18% for the S&P 500.

Since inception in 2007 this fund has outperformed the S&P by 7.5% CAGR.

[Register44]

[totality]

2020 was another monster year for PSLDX. 36% return vs 18% for the S&P 500.

Since inception in 2007 this fund has outperformed the S&P by 7.5% CAGR.

And that's mainly due to falling interest rates in 2020, as well as a generally falling interest rate environment since 2007, right?

EDIT: sorry, didn't notice the other reply making basically the same point.

[Tingting1013]

2020 was another monster year for PSLDX. 36% return vs 18% for the S&P 500.

Since inception in 2007 this fund has outperformed the S&P by 7.5% CAGR.

And that's mainly due to falling interest rates in 2020, as well as a generally falling interest rate environment since 2007, right?

EDIT: sorry, didn't notice the other reply making basically the same point.

The excess return is due to the gain on the long bonds right?

So this makes sense that it did well since 2007 as bonds have been dropping pretty hard.

I wonder how much further long bonds can drop and still provide as big of a boost?

A common misconception.

From August 2012 through Sept 2019 the 10 year Treasury started and ended at 1.5%.

During this time PSLDX returned 18% CAGR. The S&P returned 14% CAGR.

From August 2012 through Oct 2018 the 10 year Treasury started at 1.5% and ended at 3.1%.

During this time PSLDX returned 13% CAGR. The S&P returned 10% CAGR.

After 14 pages of posts, I believe we can answer the OP's original question (the title of this thread) with "Why not indeed?"

[Register44]

[Tingting1013]

The big question is what happens if we see a 1.5% move up in long rates in a single year as opposed to over 10 years. I think this would pose a shockingly bad return compared to the S*P500. The reason it works over 10 years is they are collecting increasing yields over that period to offset lose in bond values.

If your investment horizon is only 1 year, why are you investing in a leveraged equities / long bonds fund?

[totality]

From August 2012 through Sept 2019 the 10 year Treasury started and ended at 1.5%.

During this time PSLDX returned 18% CAGR. The S&P returned 14% CAGR.

From August 2012 through Oct 2018 the 10 year Treasury started at 1.5% and ended at 3.1%.

During this time PSLDX returned 13% CAGR. The S&P returned 10% CAGR.

After 14 pages of posts, I believe we can answer the OP's original question (the title of this thread) with "Why not indeed?"

Hmm, I'm having trouble understanding where the excess returns are coming from, then. The prospectus says:

The Fund typically will seek to gain long exposure to the S&P 500 Index in an amount, under normal circumstances, approximately equal to the Fund’s net assets.

So they aren't more than 100% invested in the S&P 500, and the treasury yield minus expenses is not enough to have, eg, 4% of outperformance. What am I missing?

[cos]

So they aren't more than 100% invested in the S&P 500, and the treasury yield minus expenses is not enough to have, eg, 4% of outperformance. What am I missing?

Maybe it's due to some sort of intrayear rebalancing bonus?

[Tingting1013]

From August 2012 through Sept 2019 the 10 year Treasury started and ended at 1.5%.

During this time PSLDX returned 18% CAGR. The S&P returned 14% CAGR.

From August 2012 through Oct 2018 the 10 year Treasury started at 1.5% and ended at 3.1%.

During this time PSLDX returned 13% CAGR. The S&P returned 10% CAGR.

After 14 pages of posts, I believe we can answer the OP's original question (the title of this thread) with "Why not indeed?"

Hmm, I'm having trouble understanding where the excess returns are coming from, then. The prospectus says:

The Fund typically will seek to gain long exposure to the S&P 500 Index in an amount, under normal circumstances, approximately equal to the Fund’s net assets.

So they aren't more than 100% invested in the S&P 500, and the treasury yield minus expenses is not enough to have, eg, 4% of outperformance. What am I missing?

The fund's bond allocation is not predominately invested in Treasuries

[totality]

The fund's bond allocation is not predominately invested in Treasuries

Don't know why I thought that!

Thank you for explaining.

[kevinf]

So the securities performance summary for 2020 was emailed to me for the funds I track. Seems like NTSX and PSLDX both outperformed VTI this year:
http://bitjumble.com/files/misc/PSLDX_V ... return.png

I'm thinking that the PSLDX numbers are not total return inclusive of all distributions and dividends? I think that may be missing from the percentage and PSLDX has done better than it would initially appear.

edit: as noted, PSLDX is up 36% for the year, so Vanguard's numbers are likely pure appreciation.

[Register44]

[Tingting1013]

The big question is what happens if we see a 1.5% move up in long rates in a single year as opposed to over 10 years. I think this would pose a shockingly bad return compared to the S*P500. The reason it works over 10 years is they are collecting increasing yields over that period to offset lose in bond values.

If your investment horizon is only 1 year, why are you investing in a leveraged equities / long bonds fund?

I feel a leveraged fund is better suited to a short horizon rather than a long horizon. What I still can't determine from Pimco is what would happen in the following scenario: We have a sell off sharper than 2008 say 60%. What if the bond position also lost 40%. Wouldn't that wipe out the fund completely?

A long term investor in VOO would be patient and hope over time that the remaining 40% of his money can rebound. The investor in a leveraged fund would have 0% and no chance for recovery.

Please show me I am wrong here and I would love to invest here and get more returns long term.

The S&P 500 suffered -57% drawdown from 2007 to 2009

Where is the evidence that long bonds can crash 40%? BLV has been around since 2007 and its max drawdown has only been -12%

[Register44]

[Semantics]

2020 was another monster year for PSLDX. 36% return vs 18% for the S&P 500.

Since inception in 2007 this fund has outperformed the S&P by 7.5% CAGR.

And that's mainly due to falling interest rates in 2020, as well as a generally falling interest rate environment since 2007, right?

EDIT: sorry, didn't notice the other reply making basically the same point.

The excess return is due to the gain on the long bonds right?

So this makes sense that it did well since 2007 as bonds have been dropping pretty hard.

I wonder how much further long bonds can drop and still provide as big of a boost?

A common misconception.

From August 2012 through Sept 2019 the 10 year Treasury started and ended at 1.5%.

During this time PSLDX returned 18% CAGR. The S&P returned 14% CAGR.

From August 2012 through Oct 2018 the 10 year Treasury started at 1.5% and ended at 3.1%.

During this time PSLDX returned 13% CAGR. The S&P returned 10% CAGR.

But from what I can tell, hard to find exact details of their strategy, they are collecting the spread on short term vs long term rates. So they borrow cheaply and invest into higher yielding bonds. But to get the higher yield they take on credit and duration risk. So as you point out if rates stay flat they should still be able to add a few points of return from the spread.

The big question is what happens if we see a 1.5% move up in long rates in a single year as opposed to over 10 years. I think this would pose a shockingly bad return compared to the S*P500. The reason it works over 10 years is they are collecting increasing yields over that period to offset lose in bond values.

Best recent precedent might be Jul 2016 - Sept 2018, when the 10-year yield went from 1.37 -> 3.23 (+1.86%) in 27 months, so +0.83/year.

PSLDX - 16.26% CAGR
SPX - 17.88% CAGR

I can live with that, especially since a steepening yield curve would inject the potential energy for future outperformance.

[Register44]

[Marseille07]

Basically this is a conservative version of HEDGEFUNDIE. It *probably* outperforms SPX most of the time. The problem crops up when/if the bond holdings crash.

[000]

The S&P 500 suffered -57% drawdown from 2007 to 2009

Where is the evidence that long bonds can crash 40%? BLV has been around since 2007 and its max drawdown has only been -12%

1970s stagflation? 1940s-50s bond bear market?

[Tingting1013]

The S&P 500 suffered -57% drawdown from 2007 to 2009

Where is the evidence that long bonds can crash 40%? BLV has been around since 2007 and its max drawdown has only been -12%

1970s stagflation? 1940s-50s bond bear market?

In the long run rising interest rates earn higher returns for a bond fund.

[000]

The S&P 500 suffered -57% drawdown from 2007 to 2009

Where is the evidence that long bonds can crash 40%? BLV has been around since 2007 and its max drawdown has only been -12%

1970s stagflation? 1940s-50s bond bear market?

In the long run rising interest rates earn higher returns for a bond fund.

Long run doesn't matter if you're leveraged. And, of course in REAL terms during those periods bonds suffered permanent, irrecoverable losses.

[Tingting1013]

The S&P 500 suffered -57% drawdown from 2007 to 2009

Where is the evidence that long bonds can crash 40%? BLV has been around since 2007 and its max drawdown has only been -12%

1970s stagflation? 1940s-50s bond bear market?

In the long run rising interest rates earn higher returns for a bond fund.

Long run doesn't matter if you're leveraged. And, of course in REAL terms during those periods bonds suffered permanent, irrecoverable losses.

The bonds in this fund are not leveraged, the stocks are.

Where is your evidence that rising interest rates lead to “permanent, irrecoverable” bond losses?

[firebirdparts]

I don’t think you should be at all confused about a 100% decline in psldx. It’s leveraged. Of course it could go to zero. The bonds are primarily not US treasuries either. In the asteroid scenario, Much would depend on their ability to sell bonds to pay off S&P 500 return swaps, but ultimately, if they lose 90% that’s close enough. It’s not like you could recover.

But this is true of all leverage. Leverage is the cord that ties together all the people who’ve ever jumped out a window during a stock market crash. That’s just fundamental to the nature of leverage. Psldx holds two very unrelated portfolios at the same time, but I readily admit they are linked by the cost of capital.

[manlymatt83]

I don’t think you should be at all confused about a 100% decline in psldx. It’s leveraged. Of course it could go to zero. The bonds are primarily not US treasuries either. In the asteroid scenario, Much would depend on their ability to sell bonds to pay off S&P 500 return swaps, but ultimately, if they lose 90% that’s close enough. It’s not like you could recover.

But this is true of all leverage. Leverage is the cord that ties together all the people who’ve ever jumped out a window during a stock market crash. That’s just fundamental to the nature of leverage. Psldx holds two very unrelated portfolios at the same time, but I readily admit they are linked by the cost of capital.

This is why I’ve decided to hold a fixed amount of PSLDX. I’ll let dividends and capital gains add to that with reinvestment, but I won’t add to it any further. I’ve done the math such that as I increase my holdings in VT/BNDW throughout the years, my overall allocation to PSLDX should drop.

[Tingting1013]

I don’t think you should be at all confused about a 100% decline in psldx. It’s leveraged. Of course it could go to zero. The bonds are primarily not US treasuries either. In the asteroid scenario, Much would depend on their ability to sell bonds to pay off S&P 500 return swaps, but ultimately, if they lose 90% that’s close enough. It’s not like you could recover.

But this is true of all leverage. Leverage is the cord that ties together all the people who’ve ever jumped out a window during a stock market crash. That’s just fundamental to the nature of leverage. Psldx holds two very unrelated portfolios at the same time, but I readily admit they are linked by the cost of capital.

UPRO fell from $80 to $17 in March. That’s an -80% decline. Guess where it’s at now?

The only kind of leverage that is irrecoverable is callable margin. None of these funds use margin.

[bling]

I don’t think you should be at all confused about a 100% decline in psldx. It’s leveraged. Of course it could go to zero. The bonds are primarily not US treasuries either. In the asteroid scenario, Much would depend on their ability to sell bonds to pay off S&P 500 return swaps, but ultimately, if they lose 90% that’s close enough. It’s not like you could recover.

But this is true of all leverage. Leverage is the cord that ties together all the people who’ve ever jumped out a window during a stock market crash. That’s just fundamental to the nature of leverage. Psldx holds two very unrelated portfolios at the same time, but I readily admit they are linked by the cost of capital.

UPRO fell from $80 to $17 in March. That’s an -80% decline. Guess where it’s at now?

The only kind of leverage that is irrecoverable is callable margin. None of these funds use margin.

for 2020, UPRO still hasn't beat it's previous high in february, but SSO (2x) and SPY (1x) are at all time highs at the end of the year. also, the drawdown was only 30%. if it was 50% like it was in 2008, UPRO might have lost 99%+, effectively losing your entire investment as you'll never be able to recover from there.

[000]

Long run doesn't matter if you're leveraged. And, of course in REAL terms during those periods bonds suffered permanent, irrecoverable losses.

The bonds in this fund are not leveraged, the stocks are.

Where is your evidence that rising interest rates lead to “permanent, irrecoverable” bond losses?

Doesn't matter, leverage is leverage.

If I buy a 10 year bond and the realized inflation is higher than the yield, after ten years I have lost purchasing power. That loss is permanent and irrecoverable. It's not like a stock I can keep holding onto - bonds are a fixed duration investment.

[000]

I don’t think you should be at all confused about a 100% decline in psldx. It’s leveraged. Of course it could go to zero. The bonds are primarily not US treasuries either. In the asteroid scenario, Much would depend on their ability to sell bonds to pay off S&P 500 return swaps, but ultimately, if they lose 90% that’s close enough. It’s not like you could recover.

But this is true of all leverage. Leverage is the cord that ties together all the people who’ve ever jumped out a window during a stock market crash. That’s just fundamental to the nature of leverage. Psldx holds two very unrelated portfolios at the same time, but I readily admit they are linked by the cost of capital.

UPRO fell from $80 to $17 in March. That’s an -80% decline. Guess where it’s at now?

The only kind of leverage that is irrecoverable is callable margin. None of these funds use margin.

I think you should go take a look at some of the leveraged funds that didn't experience a raging bull...

[Tingting1013]

Long run doesn't matter if you're leveraged. And, of course in REAL terms during those periods bonds suffered permanent, irrecoverable losses.

The bonds in this fund are not leveraged, the stocks are.

Where is your evidence that rising interest rates lead to “permanent, irrecoverable” bond losses?

Doesn't matter, leverage is leverage.

If I buy a 10 year bond and the realized inflation is higher than the yield, after ten years I have lost purchasing power. That loss is permanent and irrecoverable. It's not like a stock I can keep holding onto - bonds are a fixed duration investment.

A bond fund continually refreshes its holdings. This is why holding for at least the duration of the underlying bonds during a period of rising rates won’t kill your returns.

[Tingting1013]

I don’t think you should be at all confused about a 100% decline in psldx. It’s leveraged. Of course it could go to zero. The bonds are primarily not US treasuries either. In the asteroid scenario, Much would depend on their ability to sell bonds to pay off S&P 500 return swaps, but ultimately, if they lose 90% that’s close enough. It’s not like you could recover.

But this is true of all leverage. Leverage is the cord that ties together all the people who’ve ever jumped out a window during a stock market crash. That’s just fundamental to the nature of leverage. Psldx holds two very unrelated portfolios at the same time, but I readily admit they are linked by the cost of capital.

UPRO fell from $80 to $17 in March. That’s an -80% decline. Guess where it’s at now?

The only kind of leverage that is irrecoverable is callable margin. None of these funds use margin.

I think you should go take a look at some of the leveraged funds that didn't experience a raging bull...

And that’s why I don’t hold any of those other funds

[Register44]

[000]

A bond fund continually refreshes its holdings. This is why holding for at least the duration of the underlying bonds during a period of rising rates won’t kill your returns.

Not here, see Register44's post.

[furlin]

PSLDX is like a less efficient way to implement the 2x version of HFEA. Look how close the monthly rebalanced 55 SSO/45 UBT portfolio is to 100% PSLDX. SSO is 2x SPY and UBT is 2x TLT.

https://www.portfoliovisualizer.com/bac ... tion3_2=45

[firebirdparts]

That's right. You'll find some posts in this thread about simulating it more accurately, if anybody cares. It's not long term treasuries.

If you wanted to simulate it, though, you'd have to ask yourself what you're trying to do. Just how thoroughly do you agree with what they're doing.

[totality]

That's right. You'll find some posts in this thread about simulating it more accurately, if anybody cares. It's not long term treasuries.

If you wanted to simulate it, though, you'd have to ask yourself what you're trying to do. Just how thoroughly do you agree with what they're doing.

It seems like folks using leverage have quite a few more choices to make about their AA than un-levered folks.

PSLDX has a goal of beating the S&P 500, period. In a bull market, they must have at least 100% S&P 500 exposure, or else they will underperform. In a bear market, they must not have more than 100% exposure, or else they will underperform. So it seems to me that 100% S&P 500 is the only option for them.

If an individual investor who is using leverage is trying to outperform overall, and doesn't mind larger drawdowns...why not 150%? Why not 200%? Lots of choices to make, and not always clear what market conditions would cause the chosen strategy to fail.

[firebirdparts]

Very true. And with extremely low borrowing cost, modest fees, and the ability to go negative. It’s amazing really.

[international001]

PSLDX is like a less efficient way to implement the 2x version of HFEA. Look how close the monthly rebalanced 55 SSO/45 UBT portfolio is to 100% PSLDX. SSO is 2x SPY and UBT is 2x TLT.

https://www.portfoliovisualizer.com/bac ... tion3_2=45

Why less efficient? It gives me a better performance with PSLDX
Are you looking at Sharpe ratio? Higher with HFEA. And it would be better with 50/50 SOO.UBT. I never understood why the precision of 55/45

[crystalbank]

I don’t think you should be at all confused about a 100% decline in psldx. It’s leveraged. Of course it could go to zero. The bonds are primarily not US treasuries either. In the asteroid scenario, Much would depend on their ability to sell bonds to pay off S&P 500 return swaps, but ultimately, if they lose 90% that’s close enough. It’s not like you could recover.

But this is true of all leverage. Leverage is the cord that ties together all the people who’ve ever jumped out a window during a stock market crash. That’s just fundamental to the nature of leverage. Psldx holds two very unrelated portfolios at the same time, but I readily admit they are linked by the cost of capital.

Yep. Another reason why one shouldn't go all in PSLDX.

[cos]

PSLDX is like a less efficient way to implement the 2x version of HFEA. Look how close the monthly rebalanced 55 SSO/45 UBT portfolio is to 100% PSLDX. SSO is 2x SPY and UBT is 2x TLT.

https://www.portfoliovisualizer.com/bac ... tion3_2=45

That's right. You'll find some posts in this thread about simulating it more accurately, if anybody cares. It's not long term treasuries.

If you wanted to simulate it, though, you'd have to ask yourself what you're trying to do. Just how thoroughly do you agree with what they're doing.

Indeed, it looks like PSLDX is better simulated using 120/70 S&P500/LTT rather than 100/100 or even 110/90 as seen here: https://www.portfoliovisualizer.com/opt ... ints=false

This is probably because PSLDX prefers corporate bonds over government bonds and targets a materially shorter duration than TMF, UBT, or TLT. Credit risk is highly correlated with market risk while term risk is almost entirely uncorrelated.

HFEA comes out ahead of PSLDX because long-term treasuries are significantly more effective in diversifying an equity position relative to less-long-term corporates. As firebirdparts said, however, what's best for you depends on what you're trying to do, and PSLDX has many pros in addition to its cons.

[fmackaw]

Does anyone know if you can purchase additional shares of PSLDX at Fidelity if you already hold it?

i.e. if I transfer my Roth to a different brokerage and buy PSLDX, then transfer it back to Fidelity, would I be able to buy more PSLDX when I contribute next year or would I be stuck with the original allocation?

I ask because all of my accounts are at Fidelity right now, so it'd be convenient to keep it that way if possible.