When to buy NTSX relative to interest rates?

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duffer
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When to buy NTSX relative to interest rates?

Post by duffer »

In terms of the interest rate environment, when is a good time to buy NTSX?

In my limited understanding, NTSX should underperform a total market stock ETF (like VTI or ITOT) when interest rates are rising and overperform when they are falling. But because the bonds held by NTSX are relatively short term, at some point higher interest rates will begin to accrue to NTSX's benefit.

Is this a correct understanding?

If so, when--in terms of the hypothesized movement of interest rates--is an optimal time to move from an all equity ETF to NTSX? If one expects interest rates to go up over the next 12 months, it appears to me that now is a bad time to buy NTSX. Yes or no?
DMoogle
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Re: When to buy NTSX relative to interest rates?

Post by DMoogle »

What's the investment objective?
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Vegomatic
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Re: When to buy NTSX relative to interest rates?

Post by Vegomatic »

Think that you are overthinking it and also are probably demonstrating an overconfidence in your (or anyone else's) ability to call turns in interest rates.
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duffer
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Re: When to buy NTSX relative to interest rates?

Post by duffer »

DMoogle wrote: Sat Sep 11, 2021 11:02 am What's the investment objective?
To be heavily invested in equities with a cushion against declines.
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Re: When to buy NTSX relative to interest rates?

Post by RyeBourbon »

duffer wrote: Sat Sep 11, 2021 1:38 pm
DMoogle wrote: Sat Sep 11, 2021 11:02 am What's the investment objective?
To be heavily invested in equities with a cushion against declines.
How does NTSX do that?
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duffer
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Re: When to buy NTSX relative to interest rates?

Post by duffer »

RyeBourbon wrote: Sat Sep 11, 2021 1:41 pm
duffer wrote: Sat Sep 11, 2021 1:38 pm
DMoogle wrote: Sat Sep 11, 2021 11:02 am What's the investment objective?
To be heavily invested in equities with a cushion against declines.
How does NTSX do that?
Do you know NTSX?
gclancer
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Re: When to buy NTSX relative to interest rates?

Post by gclancer »

duffer wrote: Sat Sep 11, 2021 2:24 pm
RyeBourbon wrote: Sat Sep 11, 2021 1:41 pm
duffer wrote: Sat Sep 11, 2021 1:38 pm
DMoogle wrote: Sat Sep 11, 2021 11:02 am What's the investment objective?
To be heavily invested in equities with a cushion against declines.
How does NTSX do that?
Do you know NTSX?
There are no free lunches, so that “cushion against declines” is going to cost you in a rising interest rate environment. Just because interest rates are low doesn’t mean there won’t be a “flight to quality” when stocks decline (thus driving interest rates even lower) thus providing the cushioning you’re looking for. If you want that benefit you have to accept the corresponding interest rate risk. If you’re looking for a “correct point of entry” I’m not sure that that exists other than to say “now” if you like NTSX.
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Re: When to buy NTSX relative to interest rates?

Post by muffins14 »

duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?

In my limited understanding, NTSX should underperform a total market stock ETF (like VTI or ITOT) when interest rates are rising and overperform when they are falling. But because the bonds held by NTSX are relatively short term, at some point higher interest rates will begin to accrue to NTSX's benefit.

Is this a correct understanding?

If so, when--in terms of the hypothesized movement of interest rates--is an optimal time to move from an all equity ETF to NTSX? If one expects interest rates to go up over the next 12 months, it appears to me that now is a bad time to buy NTSX. Yes or no?
Now is as good a time as any. You never know when rates will change. Just buy it if you want 90/60.
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Re: When to buy NTSX relative to interest rates?

Post by ChinchillaWhiplash »

Any time TMF and VOO are both down seems like a good time to buy
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Re: When to buy NTSX relative to interest rates?

Post by duffer »

ChinchillaWhiplash wrote: Sat Sep 11, 2021 3:08 pm Any time TMF and VOO are both down seems like a good time to buy
That is actionable, especially on TMF--which was down 2.58% on Friday. Thanks.
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Re: When to buy NTSX relative to interest rates?

Post by ChinchillaWhiplash »

duffer wrote: Sat Sep 11, 2021 3:37 pm
ChinchillaWhiplash wrote: Sat Sep 11, 2021 3:08 pm Any time TMF and VOO are both down seems like a good time to buy
That is actionable, especially on TMF--which was down 2.58% on Friday. Thanks.
I added a little more myself. :mrgreen:
keith6014
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Re: When to buy NTSX relative to interest rates?

Post by keith6014 »

ChinchillaWhiplash wrote: Sat Sep 11, 2021 3:45 pm
duffer wrote: Sat Sep 11, 2021 3:37 pm
ChinchillaWhiplash wrote: Sat Sep 11, 2021 3:08 pm Any time TMF and VOO are both down seems like a good time to buy
That is actionable, especially on TMF--which was down 2.58% on Friday. Thanks.
I added a little more myself. :mrgreen:
+1. I usually wait for 2 days in a row for SPY + TLT to be down then I buy a small chunk.
skierincolorado
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Re: When to buy NTSX relative to interest rates?

Post by skierincolorado »

duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?

In my limited understanding, NTSX should underperform a total market stock ETF (like VTI or ITOT) when interest rates are rising and overperform when they are falling. But because the bonds held by NTSX are relatively short term, at some point higher interest rates will begin to accrue to NTSX's benefit.

Is this a correct understanding?

If so, when--in terms of the hypothesized movement of interest rates--is an optimal time to move from an all equity ETF to NTSX? If one expects interest rates to go up over the next 12 months, it appears to me that now is a bad time to buy NTSX. Yes or no?
1) The expected returns of bonds are still positive even after factoring in expectations of rising rates. There is an excellent but extremely complicated discussion to perform this calculation on page two this thread: viewtopic.php?f=10&t=357281

The conclusion was that even after factoring market expectations of rising rates (from forward *future* interest rate markets), bonds are still expected to have positive returns, although quite low (~.1-.2%).

2) Even if bond returns are *expected* to be very low (or even if they were expected to be negative - which they are not) there is tremendous uncertainty. There is also uncertainty in the stock market. Stock market returns may be positive or negative as well, although expected stock market returns are 4-5% currently, but there is even greater uncertainty. The purpose of owning *both* stocks and bonds is that they are uncorrelated, and even have displayed a negative correlation for the last couple decades. Thus if the stocks do very poorly, bonds would likely return 3-4% as interest rates drop back to zero. And vice-versa. Of course it's possible for both to go down at the same time, but this is much less likely. Owning both stabilizes the returns and gives more return per unit of risk.

3) By late 2009 and 2010 there were widespread expectations both in investor circles, but also priced into bond forwards markets, that rates would increase. These rate increases did not materialize for almost another 8 years. Taking a leveraged position in bonds from 2009-2016 substantially enhanced returns and reduced portfolio risk. Even if rates had increased as expected, a leveraged position in bonds would still have enhanced returns slightly and reduced portfolio volatility. Only if rates had increased significantly faster than expected would a position in bonds have been detrimental. The same is true today.

4) Returns from bonds are likely to be positive over the next 12 months, unless the FED raises interest rates by .5% or more in that time period, which is not currently expected.
Last edited by skierincolorado on Sat Sep 11, 2021 5:56 pm, edited 1 time in total.
Topic Author
duffer
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Re: When to buy NTSX relative to interest rates?

Post by duffer »

keith6014 wrote: Sat Sep 11, 2021 3:52 pm
ChinchillaWhiplash wrote: Sat Sep 11, 2021 3:45 pm
duffer wrote: Sat Sep 11, 2021 3:37 pm
ChinchillaWhiplash wrote: Sat Sep 11, 2021 3:08 pm Any time TMF and VOO are both down seems like a good time to buy
That is actionable, especially on TMF--which was down 2.58% on Friday. Thanks.
I added a little more myself. :mrgreen:
+1. I usually wait for 2 days in a row for SPY + TLT to be down then I buy a small chunk.
Also very useful and actionable--thank you!
Topic Author
duffer
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Re: When to buy NTSX relative to interest rates?

Post by duffer »

skierincolorado wrote: Sat Sep 11, 2021 5:12 pm
duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?

In my limited understanding, NTSX should underperform a total market stock ETF (like VTI or ITOT) when interest rates are rising and overperform when they are falling. But because the bonds held by NTSX are relatively short term, at some point higher interest rates will begin to accrue to NTSX's benefit.

Is this a correct understanding?

If so, when--in terms of the hypothesized movement of interest rates--is an optimal time to move from an all equity ETF to NTSX? If one expects interest rates to go up over the next 12 months, it appears to me that now is a bad time to buy NTSX. Yes or no?
1) The expected returns of bonds are still positive even after factoring in expectations of rising rates. There is an excellent but extremely complicated discussion to perform this calculation on page two this thread: viewtopic.php?f=10&t=357281

The conclusion was that even after factoring market expectations of rising rates (from forward *future* interest rate markets), bonds are still expected to have positive returns, although quite low (~.1-.2%).

2) Even if bond returns are *expected* to be very low (or even if they were expected to be negative - which they are not) there is tremendous uncertainty. There is also uncertainty in the stock market. Stock market returns may be positive or negative as well, although expected stock market returns are 4-5% currently, but there is even greater uncertainty. The purpose of owning *both* stocks and bonds is that they are uncorrelated, and even have displayed a negative correlation for the last couple decades. Thus if the stocks do very poorly, bonds would likely return 3-4% as interest rates drop back to zero. And vice-versa. Of course it's possible for both to go down at the same time, but this is much less likely. Owning both stabilizes the returns and allows you to take more risk.

3) By late 2009 and 2010 there were widespread expectations both in investor circles, but also priced into bond forwards markets, that rates would increase. These rate increases did not materialize for almost another 8 years. Taking a leveraged position in bonds from 2009-2016 substantially enhanced returns and reduced portfolio risk. Even if rates had increased as expected, a leveraged position in bonds would still have enhanced returns slightly and reduced portfolio volatility. Only if rates had increased significantly faster than expected would a position in bonds have been detrimental. The same is true today.

4) Returns from bonds are likely to be positive over the next 12 months, unless the FED raises interest rates by .5% or more in that time period, which is not currently expected.
Thank you for taking the time to provide such a thoughtful and knowledgeable answer.

I appear to have an allergy to bonds, which I think was induced by Jeremy Siegel and Warren Buffet and has been aggravated by my not having a feel for how bonds move or earn money (also known as a lack of knowledge about and experience with bonds). I also tend to take the word of those who say that the thirty-year bull market in bonds has ended--which makes it sound like one shouldn't want to own them.

All of the above is what makes me interested in NTSX--some of the ballast of bonds without actually owning many. :happy
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Re: When to buy NTSX relative to interest rates?

Post by arcticpineapplecorp. »

Why NTSX?

Gain enhanced exposure to U.S. equities with added bond futures diversification to potentially lower volatility
look at the following:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

while the fund did have higher risk adjusted returns than a balanced index fund, it did have higher volatility as per standard deviation and worse drawdowns and worst year than a simple 60/40 portfolio.

So I'm not sure if the potentially "lower volatility" rings true. Plus the fund's only been around for a couple years. I know it's Jeremy Siegel and all, but still, I like a longer track record than that.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events.
muffins14
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Re: When to buy NTSX relative to interest rates?

Post by muffins14 »

arcticpineapplecorp. wrote: Sat Sep 11, 2021 6:10 pm
Why NTSX?

Gain enhanced exposure to U.S. equities with added bond futures diversification to potentially lower volatility
look at the following:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

while the fund did have higher risk adjusted returns than a balanced index fund, it did have higher volatility as per standard deviation and worse drawdowns and worst year than a simple 60/40 portfolio.

So I'm not sure if the potentially "lower volatility" rings true. Plus the fund's only been around for a couple years. I know it's Jeremy Siegel and all, but still, I like a longer track record than that.

I think the intention is to be lower volatility than 100% stocks, not lower volatility than 60/40. It’s 1.5x 60/40, so by design it should have higher expected return and also higher volatility, not lower
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Re: When to buy NTSX relative to interest rates?

Post by dalbright »

I wish NTSX's sibling NTSI (90%intl/60 US treasury) would get a bit more love. The volume has been a bit low and premium a bit high for my taste. Once the premium is closer to 0 i'd move over some from vxus. FWIW I will be buying more NTSX in our IRA's in January when/if there is minimal premium.
DMoogle
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Re: When to buy NTSX relative to interest rates?

Post by DMoogle »

duffer wrote: Sat Sep 11, 2021 1:38 pm
DMoogle wrote: Sat Sep 11, 2021 11:02 am What's the investment objective?
To be heavily invested in equities with a cushion against declines.
Simply put, NTSX meets that objective.

Regarding your question about interest rates raising; do you think the market expects that as well? If so, it should already be priced into the current price of the treasuries so it's a non-issue.
Last edited by DMoogle on Sat Sep 11, 2021 6:47 pm, edited 1 time in total.
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Re: When to buy NTSX relative to interest rates?

Post by DMoogle »

dalbright wrote: Sat Sep 11, 2021 6:45 pm I wish NTSX's sibling NTSI (90%intl/60 US treasury) would get a bit more love. The volume has been a bit low and premium a bit high for my taste. Once the premium is closer to 0 i'd move over some from vxus. FWIW I will be buying more NTSX in our IRA's in January when/if there is minimal premium.
I'm with ya there. I hold 900 shares of NTSI currently, but I agree on the premium - I purchased using IB's midprice algo, but even with that I estimated the premium was probably over 0.1%.
skierincolorado
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Re: When to buy NTSX relative to interest rates?

Post by skierincolorado »

duffer wrote: Sat Sep 11, 2021 6:02 pm
skierincolorado wrote: Sat Sep 11, 2021 5:12 pm
duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?

In my limited understanding, NTSX should underperform a total market stock ETF (like VTI or ITOT) when interest rates are rising and overperform when they are falling. But because the bonds held by NTSX are relatively short term, at some point higher interest rates will begin to accrue to NTSX's benefit.

Is this a correct understanding?

If so, when--in terms of the hypothesized movement of interest rates--is an optimal time to move from an all equity ETF to NTSX? If one expects interest rates to go up over the next 12 months, it appears to me that now is a bad time to buy NTSX. Yes or no?
1) The expected returns of bonds are still positive even after factoring in expectations of rising rates. There is an excellent but extremely complicated discussion to perform this calculation on page two this thread: viewtopic.php?f=10&t=357281

The conclusion was that even after factoring market expectations of rising rates (from forward *future* interest rate markets), bonds are still expected to have positive returns, although quite low (~.1-.2%).

2) Even if bond returns are *expected* to be very low (or even if they were expected to be negative - which they are not) there is tremendous uncertainty. There is also uncertainty in the stock market. Stock market returns may be positive or negative as well, although expected stock market returns are 4-5% currently, but there is even greater uncertainty. The purpose of owning *both* stocks and bonds is that they are uncorrelated, and even have displayed a negative correlation for the last couple decades. Thus if the stocks do very poorly, bonds would likely return 3-4% as interest rates drop back to zero. And vice-versa. Of course it's possible for both to go down at the same time, but this is much less likely. Owning both stabilizes the returns and allows you to take more risk.

3) By late 2009 and 2010 there were widespread expectations both in investor circles, but also priced into bond forwards markets, that rates would increase. These rate increases did not materialize for almost another 8 years. Taking a leveraged position in bonds from 2009-2016 substantially enhanced returns and reduced portfolio risk. Even if rates had increased as expected, a leveraged position in bonds would still have enhanced returns slightly and reduced portfolio volatility. Only if rates had increased significantly faster than expected would a position in bonds have been detrimental. The same is true today.

4) Returns from bonds are likely to be positive over the next 12 months, unless the FED raises interest rates by .5% or more in that time period, which is not currently expected.
Thank you for taking the time to provide such a thoughtful and knowledgeable answer.

I appear to have an allergy to bonds, which I think was induced by Jeremy Siegel and Warren Buffet and has been aggravated by my not having a feel for how bonds move or earn money (also known as a lack of knowledge about and experience with bonds). I also tend to take the word of those who say that the thirty-year bull market in bonds has ended--which makes it sound like one shouldn't want to own them.

All of the above is what makes me interested in NTSX--some of the ballast of bonds without actually owning many. :happy
Low short-term interest rates have made both bonds and stocks extremely expensive. We never know what the future holds, but there is a good probability the 30-yr bull run in both stocks and bonds is over. Hedge your bets and own some of both. Leverage to your risk tolerance. NTSX is good, other than the fees.
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Re: When to buy NTSX relative to interest rates?

Post by ChinchillaWhiplash »

dalbright wrote: Sat Sep 11, 2021 6:45 pm I wish NTSX's sibling NTSI (90%intl/60 US treasury) would get a bit more love. The volume has been a bit low and premium a bit high for my taste. Once the premium is closer to 0 i'd move over some from vxus. FWIW I will be buying more NTSX in our IRA's in January when/if there is minimal premium.
NTSI has $16+million in AUM. Volume is almost non-existant. 0.50 premium too. It is very new so hopefully business will pick up. Keeping my eye on it.
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Re: When to buy NTSX relative to interest rates?

Post by ChinchillaWhiplash »

arcticpineapplecorp. wrote: Sat Sep 11, 2021 6:10 pm
Why NTSX?

Gain enhanced exposure to U.S. equities with added bond futures diversification to potentially lower volatility
look at the following:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

while the fund did have higher risk adjusted returns than a balanced index fund, it did have higher volatility as per standard deviation and worse drawdowns and worst year than a simple 60/40 portfolio.

So I'm not sure if the potentially "lower volatility" rings true. Plus the fund's only been around for a couple years. I know it's Jeremy Siegel and all, but still, I like a longer track record than that.
Even with the higher drawdown, if you looked at NTSX at it’s lowest point (which is the same as the other fund) it still had a higher return due to having a higher value before the downturn. It seems to be clear which one performs better :beer
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duffer
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Re: When to buy NTSX relative to interest rates?

Post by duffer »

skierincolorado wrote: Sat Sep 11, 2021 7:41 pm
duffer wrote: Sat Sep 11, 2021 6:02 pm
skierincolorado wrote: Sat Sep 11, 2021 5:12 pm
duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?

In my limited understanding, NTSX should underperform a total market stock ETF (like VTI or ITOT) when interest rates are rising and overperform when they are falling. But because the bonds held by NTSX are relatively short term, at some point higher interest rates will begin to accrue to NTSX's benefit.

Is this a correct understanding?

If so, when--in terms of the hypothesized movement of interest rates--is an optimal time to move from an all equity ETF to NTSX? If one expects interest rates to go up over the next 12 months, it appears to me that now is a bad time to buy NTSX. Yes or no?
1) The expected returns of bonds are still positive even after factoring in expectations of rising rates. There is an excellent but extremely complicated discussion to perform this calculation on page two this thread: viewtopic.php?f=10&t=357281

The conclusion was that even after factoring market expectations of rising rates (from forward *future* interest rate markets), bonds are still expected to have positive returns, although quite low (~.1-.2%).

2) Even if bond returns are *expected* to be very low (or even if they were expected to be negative - which they are not) there is tremendous uncertainty. There is also uncertainty in the stock market. Stock market returns may be positive or negative as well, although expected stock market returns are 4-5% currently, but there is even greater uncertainty. The purpose of owning *both* stocks and bonds is that they are uncorrelated, and even have displayed a negative correlation for the last couple decades. Thus if the stocks do very poorly, bonds would likely return 3-4% as interest rates drop back to zero. And vice-versa. Of course it's possible for both to go down at the same time, but this is much less likely. Owning both stabilizes the returns and allows you to take more risk.

3) By late 2009 and 2010 there were widespread expectations both in investor circles, but also priced into bond forwards markets, that rates would increase. These rate increases did not materialize for almost another 8 years. Taking a leveraged position in bonds from 2009-2016 substantially enhanced returns and reduced portfolio risk. Even if rates had increased as expected, a leveraged position in bonds would still have enhanced returns slightly and reduced portfolio volatility. Only if rates had increased significantly faster than expected would a position in bonds have been detrimental. The same is true today.

4) Returns from bonds are likely to be positive over the next 12 months, unless the FED raises interest rates by .5% or more in that time period, which is not currently expected.
Thank you for taking the time to provide such a thoughtful and knowledgeable answer.

I appear to have an allergy to bonds, which I think was induced by Jeremy Siegel and Warren Buffet and has been aggravated by my not having a feel for how bonds move or earn money (also known as a lack of knowledge about and experience with bonds). I also tend to take the word of those who say that the thirty-year bull market in bonds has ended--which makes it sound like one shouldn't want to own them.

All of the above is what makes me interested in NTSX--some of the ballast of bonds without actually owning many. :happy
Low short-term interest rates have made both bonds and stocks extremely expensive. We never know what the future holds, but there is a good probability the 30-yr bull run in both stocks and bonds is over. Hedge your bets and own some of both. Leverage to your risk tolerance. NTSX is good, other than the fees.
Thank you for your help and insights!
comeinvest
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Re: When to buy NTSX relative to interest rates?

Post by comeinvest »

skierincolorado wrote: Sat Sep 11, 2021 5:12 pm
duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?

In my limited understanding, NTSX should underperform a total market stock ETF (like VTI or ITOT) when interest rates are rising and overperform when they are falling. But because the bonds held by NTSX are relatively short term, at some point higher interest rates will begin to accrue to NTSX's benefit.

Is this a correct understanding?

If so, when--in terms of the hypothesized movement of interest rates--is an optimal time to move from an all equity ETF to NTSX? If one expects interest rates to go up over the next 12 months, it appears to me that now is a bad time to buy NTSX. Yes or no?
1) The expected returns of bonds are still positive even after factoring in expectations of rising rates. There is an excellent but extremely complicated discussion to perform this calculation on page two this thread: viewtopic.php?f=10&t=357281

The conclusion was that even after factoring market expectations of rising rates (from forward *future* interest rate markets), bonds are still expected to have positive returns, although quite low (~.1-.2%).

2) Even if bond returns are *expected* to be very low (or even if they were expected to be negative - which they are not) there is tremendous uncertainty. There is also uncertainty in the stock market. Stock market returns may be positive or negative as well, although expected stock market returns are 4-5% currently, but there is even greater uncertainty. The purpose of owning *both* stocks and bonds is that they are uncorrelated, and even have displayed a negative correlation for the last couple decades. Thus if the stocks do very poorly, bonds would likely return 3-4% as interest rates drop back to zero. And vice-versa. Of course it's possible for both to go down at the same time, but this is much less likely. Owning both stabilizes the returns and gives more return per unit of risk.

3) By late 2009 and 2010 there were widespread expectations both in investor circles, but also priced into bond forwards markets, that rates would increase. These rate increases did not materialize for almost another 8 years. Taking a leveraged position in bonds from 2009-2016 substantially enhanced returns and reduced portfolio risk. Even if rates had increased as expected, a leveraged position in bonds would still have enhanced returns slightly and reduced portfolio volatility. Only if rates had increased significantly faster than expected would a position in bonds have been detrimental. The same is true today.

4) Returns from bonds are likely to be positive over the next 12 months, unless the FED raises interest rates by .5% or more in that time period, which is not currently expected.
It is much easier to have positive returns from bonds than having positive returns from leveraged bonds.

You have positive returns from leveraged bonds when the term premium is positive, i.e. the returns from treasuries is higher than the financing cost i.e. the average of the expected or realized short-term rates over the time period that the treasury is held.

The expected term premium estimated from STIR futures has been positive for most of history, except it has been close to zero and even negative lately, and is hovering close to zero or only slightly positive now. Of course it's more complicated than that, because the realized term premium has historically been higher than the estimated term premium.

My main point is, predicting future performance based on historical results is dangerous, if done without adjusting the model.
skierincolorado
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Re: When to buy NTSX relative to interest rates?

Post by skierincolorado »

comeinvest wrote: Sat Sep 11, 2021 10:14 pm
skierincolorado wrote: Sat Sep 11, 2021 5:12 pm
duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?

In my limited understanding, NTSX should underperform a total market stock ETF (like VTI or ITOT) when interest rates are rising and overperform when they are falling. But because the bonds held by NTSX are relatively short term, at some point higher interest rates will begin to accrue to NTSX's benefit.

Is this a correct understanding?

If so, when--in terms of the hypothesized movement of interest rates--is an optimal time to move from an all equity ETF to NTSX? If one expects interest rates to go up over the next 12 months, it appears to me that now is a bad time to buy NTSX. Yes or no?
1) The expected returns of bonds are still positive even after factoring in expectations of rising rates. There is an excellent but extremely complicated discussion to perform this calculation on page two this thread: viewtopic.php?f=10&t=357281

The conclusion was that even after factoring market expectations of rising rates (from forward *future* interest rate markets), bonds are still expected to have positive returns, although quite low (~.1-.2%).

2) Even if bond returns are *expected* to be very low (or even if they were expected to be negative - which they are not) there is tremendous uncertainty. There is also uncertainty in the stock market. Stock market returns may be positive or negative as well, although expected stock market returns are 4-5% currently, but there is even greater uncertainty. The purpose of owning *both* stocks and bonds is that they are uncorrelated, and even have displayed a negative correlation for the last couple decades. Thus if the stocks do very poorly, bonds would likely return 3-4% as interest rates drop back to zero. And vice-versa. Of course it's possible for both to go down at the same time, but this is much less likely. Owning both stabilizes the returns and gives more return per unit of risk.

3) By late 2009 and 2010 there were widespread expectations both in investor circles, but also priced into bond forwards markets, that rates would increase. These rate increases did not materialize for almost another 8 years. Taking a leveraged position in bonds from 2009-2016 substantially enhanced returns and reduced portfolio risk. Even if rates had increased as expected, a leveraged position in bonds would still have enhanced returns slightly and reduced portfolio volatility. Only if rates had increased significantly faster than expected would a position in bonds have been detrimental. The same is true today.

4) Returns from bonds are likely to be positive over the next 12 months, unless the FED raises interest rates by .5% or more in that time period, which is not currently expected.
It is much easier to have positive returns from bonds than having positive returns from leveraged bonds.

You have positive returns from leveraged bonds when the term premium is positive, i.e. the returns from treasuries is higher than the financing cost i.e. the average of the expected or realized short-term rates over the time period that the treasury is held.

The expected term premium estimated from STIR futures has been positive for most of history, except it has been close to zero and even negative lately, and is hovering close to zero or only slightly positive now. Of course it's more complicated than that, because the realized term premium has historically been higher than the estimated term premium.

My main point is, predicting future performance based on historical results is dangerous, if done without adjusting the model.
A massively simplifying assumption that avoids having to come up with such a model at all, or even to consider historical results beyond a basic estimate of risk, would be to assume the market is efficient, assets are priced appropriate to risk, and to take approximately equal risk across the major asset classes, domestic and international.
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duffer
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Re: When to buy NTSX relative to interest rates?

Post by duffer »

DMoogle wrote: Sat Sep 11, 2021 6:45 pm
duffer wrote: Sat Sep 11, 2021 1:38 pm
DMoogle wrote: Sat Sep 11, 2021 11:02 am What's the investment objective?
To be heavily invested in equities with a cushion against declines.
Simply put, NTSX meets that objective.

Regarding your question about interest rates raising; do you think the market expects that as well? If so, it should already be priced into the current price of the treasuries so it's a non-issue.
But surely I'm smarter than the market? :wink:
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duffer
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Re: When to buy NTSX relative to interest rates?

Post by duffer »

skierincolorado wrote: Sat Sep 11, 2021 10:47 pm
A massively simplifying assumption that avoids having to come up with such a model at all, or even to consider historical results beyond a basic estimate of risk, would be to assume the market is efficient, assets are priced appropriate to risk, and to take approximately equal risk across the major asset classes, domestic and international.
I would think that "approximately equal risk across the major asset classes" assumes that all investors have the same need, ability, and willingness to take risk.

My own investing objective is to maintain a 25-30 year supply of funds for my wife and I while aggressively growing assets for the next generation. So I may want to take more risk than many other investors.

I think we could safely invest all our investable assets in equities and still be safe at about the 95% level with a variable withdrawal policy (something like Guyton-Klinger) to fund our needs and desires. So NTSX is appealing because it offers equity levels of growth with some cushioning. I don't think we need too much cushioning.

Unless I were to be persuaded that bonds would out-perform equities over an intermediate horizon (5-10 years), I am unlikely to invest in bonds to any significant degree.
skierincolorado
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Re: When to buy NTSX relative to interest rates?

Post by skierincolorado »

duffer wrote: Sun Sep 12, 2021 7:54 am
skierincolorado wrote: Sat Sep 11, 2021 10:47 pm
A massively simplifying assumption that avoids having to come up with such a model at all, or even to consider historical results beyond a basic estimate of risk, would be to assume the market is efficient, assets are priced appropriate to risk, and to take approximately equal risk across the major asset classes, domestic and international.
I would think that "approximately equal risk across the major asset classes" assumes that all investors have the same need, ability, and willingness to take risk.

Not at all. Leverage or deleverage to risk-tolerance. For example, we could leverage a 50:50 portfolio 3x to 150:150. Or we could deleverage .8x to 40%:40% (+20% cash).
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duffer
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Re: When to buy NTSX relative to interest rates?

Post by duffer »

skierincolorado wrote: Sun Sep 12, 2021 12:37 pm
duffer wrote: Sun Sep 12, 2021 7:54 am
skierincolorado wrote: Sat Sep 11, 2021 10:47 pm
A massively simplifying assumption that avoids having to come up with such a model at all, or even to consider historical results beyond a basic estimate of risk, would be to assume the market is efficient, assets are priced appropriate to risk, and to take approximately equal risk across the major asset classes, domestic and international.
I would think that "approximately equal risk across the major asset classes" assumes that all investors have the same need, ability, and willingness to take risk.

Not at all. Leverage or deleverage to risk-tolerance. For example, we could leverage a 50:50 portfolio 3x to 150:150. Or we could deleverage .8x to 40%:40% (+20% cash).
No doubt what you say is true. But I don't have the skills to do that, nor the time and interest to monitor it properly--especially if using something like leveraged ETFs.

It seems much easier to me to have 90% in the S&P or broader and keep 3-5 years of withdrawals in short term treasuries. Then go to Italy. :happy

I should add that we have non-investable income flows from very secure and stable sources that cover our essential expenses.
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Re: When to buy NTSX relative to interest rates?

Post by ChinchillaWhiplash »

ChinchillaWhiplash wrote: Sat Sep 11, 2021 9:10 pm
dalbright wrote: Sat Sep 11, 2021 6:45 pm I wish NTSX's sibling NTSI (90%intl/60 US treasury) would get a bit more love. The volume has been a bit low and premium a bit high for my taste. Once the premium is closer to 0 i'd move over some from vxus. FWIW I will be buying more NTSX in our IRA's in January when/if there is minimal premium.
NTSI has $16+million in AUM. Volume is almost non-existant. 0.50 premium too. It is very new so hopefully business will pick up. Keeping my eye on it.
Bought a few 100 shares as it is at a slight discount now. Will add more soon since my international % is down from my target AA.
dalbright
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Re: When to buy NTSX relative to interest rates?

Post by dalbright »

ChinchillaWhiplash wrote: Mon Sep 13, 2021 12:09 pm
ChinchillaWhiplash wrote: Sat Sep 11, 2021 9:10 pm
dalbright wrote: Sat Sep 11, 2021 6:45 pm I wish NTSX's sibling NTSI (90%intl/60 US treasury) would get a bit more love. The volume has been a bit low and premium a bit high for my taste. Once the premium is closer to 0 i'd move over some from vxus. FWIW I will be buying more NTSX in our IRA's in January when/if there is minimal premium.
NTSI has $16+million in AUM. Volume is almost non-existant. 0.50 premium too. It is very new so hopefully business will pick up. Keeping my eye on it.
Bought a few 100 shares as it is at a slight discount now. Will add more soon since my international % is down from my target AA.
You found it at a slight discount today? I checked after your post and it seemed like it was around .5% premium? Maybe the site i used was not updating properly though. Ready to pull the trigger and shift from vxus at any time!
000
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Re: When to buy NTSX relative to interest rates?

Post by 000 »

duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?
Wake me up when the 10 YR Treasury is in double digits.
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Re: When to buy NTSX relative to interest rates?

Post by ChinchillaWhiplash »

dalbright wrote: Mon Sep 13, 2021 6:16 pm
ChinchillaWhiplash wrote: Mon Sep 13, 2021 12:09 pm
ChinchillaWhiplash wrote: Sat Sep 11, 2021 9:10 pm
dalbright wrote: Sat Sep 11, 2021 6:45 pm I wish NTSX's sibling NTSI (90%intl/60 US treasury) would get a bit more love. The volume has been a bit low and premium a bit high for my taste. Once the premium is closer to 0 i'd move over some from vxus. FWIW I will be buying more NTSX in our IRA's in January when/if there is minimal premium.
NTSI has $16+million in AUM. Volume is almost non-existant. 0.50 premium too. It is very new so hopefully business will pick up. Keeping my eye on it.
Bought a few 100 shares as it is at a slight discount now. Will add more soon since my international % is down from my target AA.
You found it at a slight discount today? I checked after your post and it seemed like it was around .5% premium? Maybe the site i used was not updating properly though. Ready to pull the trigger and shift from vxus at any time!
.5 was what I saw last week. Today was at -0.03 for 9/10/21.
muffins14
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Re: When to buy NTSX relative to interest rates?

Post by muffins14 »

000 wrote: Mon Sep 13, 2021 6:47 pm
duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?
Wake me up when the 10 YR Treasury is in double digits.
I hope that never happens
000
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Re: When to buy NTSX relative to interest rates?

Post by 000 »

muffins14 wrote: Mon Sep 13, 2021 7:03 pm
000 wrote: Mon Sep 13, 2021 6:47 pm Wake me up when the 10 YR Treasury is in double digits.
I hope that never happens
Then I guess I'll be 😴 for a long time.
drzzzzz
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Re: When to buy NTSX relative to interest rates?

Post by drzzzzz »

Why was volume so high today and what explains the drop?
jarjarM
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Re: When to buy NTSX relative to interest rates?

Post by jarjarM »

drzzzzz wrote: Mon Sep 13, 2021 7:31 pm Why was volume so high today and what explains the drop?
I don't own NTSX but my guess would be dividend.
muffins14
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Re: When to buy NTSX relative to interest rates?

Post by muffins14 »

Not a dividend. I think someone just really wanted to sell end of day, causing a price drop.

It’s recovered today, sometimes those weird end-of-day things seem to happen with this fund
dalbright
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Re: When to buy NTSX relative to interest rates?

Post by dalbright »

Ok who bought 1million shares of NTSX today...quite the volume uptick from 80k average!
occambogle
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Re: When to buy NTSX relative to interest rates?

Post by occambogle »

dalbright wrote: Tue Sep 14, 2021 9:57 am Ok who bought 1million shares of NTSX today...quite the volume uptick from 80k average!
Sorry I was drunk, it was meant to be 1 share. But seriously, on the “volume” alone figure how do we know it wasn’t 1 million sold? ETFs can be created or destroyed, no? We’d have to compare AUM figures before/after.
dalbright
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Re: When to buy NTSX relative to interest rates?

Post by dalbright »

occambogle wrote: Tue Sep 14, 2021 10:22 am
dalbright wrote: Tue Sep 14, 2021 9:57 am Ok who bought 1million shares of NTSX today...quite the volume uptick from 80k average!
Sorry I was drunk, it was meant to be 1 share. But seriously, on the “volume” alone figure how do we know it wasn’t 1 million sold? ETFs can be created or destroyed, no? We’d have to compare AUM figures before/after.
Hah! You don't sell NTSX, buy and hold only!!!
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Re: When to buy NTSX relative to interest rates?

Post by ChinchillaWhiplash »

How many shares would it take to make a creation unit?
skierincolorado
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Re: When to buy NTSX relative to interest rates?

Post by skierincolorado »

000 wrote: Mon Sep 13, 2021 6:47 pm
duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?
Wake me up when the 10 YR Treasury is in double digits.
It's not about the absolute yield on the 10-yr. It's about the spread between the bonds invested in vs borrowing costs, which is pretty decent right now.
000
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Re: When to buy NTSX relative to interest rates?

Post by 000 »

skierincolorado wrote: Tue Sep 14, 2021 11:39 am
000 wrote: Mon Sep 13, 2021 6:47 pm
duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?
Wake me up when the 10 YR Treasury is in double digits.
It's not about the absolute yield on the 10-yr. It's about the spread between the bonds invested in vs borrowing costs, which is pretty decent right now.
Still snoozing away... 😴 😴

NTSX rebalances the bond futures with stocks so rising rates hurt irrespective of borrowing spread.
skierincolorado
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Re: When to buy NTSX relative to interest rates?

Post by skierincolorado »

000 wrote: Tue Sep 14, 2021 7:09 pm
skierincolorado wrote: Tue Sep 14, 2021 11:39 am
000 wrote: Mon Sep 13, 2021 6:47 pm
duffer wrote: Sat Sep 11, 2021 10:50 am In terms of the interest rate environment, when is a good time to buy NTSX?
Wake me up when the 10 YR Treasury is in double digits.
It's not about the absolute yield on the 10-yr. It's about the spread between the bonds invested in vs borrowing costs, which is pretty decent right now.
Still snoozing away... 😴 😴

NTSX rebalances the bond futures with stocks so rising rates hurt irrespective of borrowing spread.
Only if rates rise faster than expected. If rates rise as expected bond returns will exceed the cost of borrowing. If rates rise slower than expected bond returns will be even more. You’re trying to time the bond market which Is antithetical to this entire forum.
dalbright
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Re: When to buy NTSX relative to interest rates?

Post by dalbright »

Bought some more NTSX today as my (tiny) mega back door roth showed up in vanguard finally. Sold some vxus to move into NTSI for a few shares as well. Now I just need a midcap version of NTSX :).
000
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Re: When to buy NTSX relative to interest rates?

Post by 000 »

skierincolorado wrote: Tue Sep 14, 2021 9:28 pm Only if rates rise faster than expected. If rates rise as expected bond returns will exceed the cost of borrowing. If rates rise slower than expected bond returns will be even more. You’re trying to time the bond market which Is antithetical to this entire forum.
Not really. It's more that I find the asset class (leveraged bonds) uninteresting and a bit absurd except at an extreme.
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