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

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bgf
Posts: 1952
Joined: Fri Nov 10, 2017 9:35 am

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

Post by bgf »

johnsmithsf wrote: Sat Nov 19, 2022 10:42 am
jrbdmb wrote: Fri Nov 11, 2022 1:50 pm
johnsmithsf wrote: Tue Oct 18, 2022 7:58 pm
johnsmithsf wrote: Tue Oct 18, 2022 10:35 am
bgf wrote: Tue Oct 18, 2022 8:11 am

its just that easy huh?
If a federal rate hike train is coming at you, thus making the interest rates go up, one should let go of his/her white knuckle grip on the long duration bonds. Otherwise the train of long term bond price crash will hit you hard. Happens every-time when you backtest PSLDX.

It's very simple. When rates go up, bond prices drop...Every 1% rise in rates crashes PSLDX by 7-8% .
You can imagine PSLDX as a combination of S&P 500 + Vanguard Long-Term Bond Index Fund Institutional Shares (VBLLX)

Expected approximate annual PSLDX returns are Returns of S&P 500 + Yield of VBLLX (current SEC yield is 5%) - 8X percentage rise in Federal interest rates.

(or if you want to make it more accurate, use
Expected approximate annual PSLDX returns =Returns of S&P 500 + Yield of VBLLX (current SEC yield is 5%) - 14x percent rise in 20 year Treasury. {It was 2% in Jan 2022, now 4%})

I am all for buy and hold, but keep holding long duration bonds, when Feds are explicitly stating their desire to raise rates, is more like a deer in the headlights behavior :shock: . PSLDX is performing exactly as designed. And it will likely start beating S&P 500 by 4-5% annually as soon as feds stop hiking rates :sharebeer .
The Fed first hiked rates from 0.25% to 0.50% on March 17, 2022. By that time PSLDX had already dropped about 30% from it's peak.

Short-term rates are highly dependent on the Fed. Long term term rates are not - they tend to focus more on the strength of the economy and inflation. Good luck on predicting the month-to-month variation of inflation rates and their effect on long bonds.
https://fred.stlouisfed.org/graph/?g=WzH2

You can see in this plot that as Feds rate/3 month treasury rates go up, 10 year treasury yields usually go up. Rates can go up even when inflation is out of control

Point is,
- :idea: if the Feds are warning about rate hike, don't hold long term bonds.
- :idea: if inflation is out of control, don't hold long term bonds.

At other times PSLDX and long term bonds are okay

It's that simple. :sharebeer
30 year has dropped like 75 bps (or close, I haven’t checked it) in a few weeks, and the fed hasn’t signaled any change.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
bgf
Posts: 1952
Joined: Fri Nov 10, 2017 9:35 am

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

Post by bgf »

PoorHomieQuan wrote: Thu Nov 24, 2022 12:37 am
bgf wrote: Fri Nov 11, 2022 7:17 am
I say this mostly because I think many observers believe these won’t make back their ground for 20 years, and I just don’t see that as realistic having watched these moves on a daily basis all year.
Given the difference in performance this year between psldx and VOO, everyone on the planet should hop into psldx now if it really is guaranteed to make up the difference in short order. That said the present outlook for psldx seems much better than a couple months ago given that the main bugbear has switched from inflation (where bonds suffer) to recession (where bonds do well).
I do wish I had funds to have DCA’d into PSLDX like I did with my HFEA version in my Roth. There is no guarantee that PSLDX will recover against its benchmark in any particular period of time. That it path dependent. My point was just that watching these moves on a daily basis and seeing how much ground is made up in just a few weeks, 20 years just seems like an outlier outcome.

I’ve just regained 15% against my benchmark (VT) in like a week or two. And long term rates can fall much further.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
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firebirdparts
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Joined: Thu Jun 13, 2019 4:21 pm

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

Post by firebirdparts »

This would have been a good year for that.
A fool and your money are soon partners
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