[quote=aldo63]

i am more concerned about the residential real estate market than floating rate funds. I do not use the leveraged floating rate products. The senior bank loan market is more liquid than the longer term high yield market and certainly more than real estate which I believe the defaults are coming. There is much more money  in loans to higher credit risk customers, small business,developers,ect than senior floating rate funds. There is a market for floating rate loans,where real bank loans to a small busines have no liquidity. If you put a credit rating on most small business it would be in the junk range. Many banks will fail if this scenerio happens. So what you are saying is that we are going to have a 1929 type collapse? If that is the case, i believe in the put you money in a shoebox theory.

We also had this discussion on this board early last year and NOTHING HAPPEND except a 7.5% return on the highland floating rate fund.

[quote=joedabrkr] I don’t use many “strategic income” products because
frankly I’m not comfortable with not knowing what is under the
hood.[/quote]


See, I have no problem with junk debt. I have a big problem when it
gets called something other than junk. I.e “strategic income” or
"floating rate" etc.


[quote]When I can get a 6% current yield and about a 5% expected
YTM/ELTR on a plain vanilla “pays cash monthly” GNMA UIT from First
Trust, I fail to see the attraction of taking the risk involved in some
of these other products.  There is extension risk in the GNMA’s,
but no credit risk.  If I want to be even a little more
conservative we can put some of the $ in 1-2 year CD’s or corps.[/quote]



Joe, aren’t you an RIA/IAR? If so what are you doing with UIT’s?


[quote]For funds I use DGCAX and VFSTX, and read the profiles carefully to make sure they are staying investment grade.[/quote]


In a little while VG is going to roll out Fixed income ETF’s. I’m 
very interested in the VG Lehmann AGG etf, based off the total bond
market fund.



Right now there are three short ETF’s from BGI



SHV == 1Y- TSY

CSJ == 1-3 Corp

SHY == 1-3 TSY



For people who need a big TSY money market position SHV is perfect. Only 20bp. These days I’m pretty SHY.

[quote]I owned a bunch of PHD-a senior loan fund which is managed by
Highland Capital.  Many guys believe them to be the best in the
business.[/quote]



Another group that is good is NYLIM/Mainstay. In their last
presentation they talked about having default rate 1/2 of the CFSB
index. NYLIM manages some huge fixed income portfolio’s so they have
experience.



As for me. My clients get junk/leveraged exposure via commercial
mortgage REITs like NCT/KFN etc. It is my opinion that commercial
mortgages are safer than junk debt because of the overcollateralised
hard assets underneath them. Of course I bought NCT/KFN when they were
trading at 23 or so.



I happen to think that Fortress/KKR are better junk debt managers than
anyone who operates retail-oriented investments. Also the inside
management owns a ton of shares, so they are “motivated”.

[quote]When the defaults start up and the valuations drop because everyone wants out, then I’ll come back.

I feel much the same about REITS right now.[/quote]



REITs is tricky because the REITs that are in the indexes, are
horrifically overvalued. But outside the indexes, lots of REITs are
attractivly priced.

Allreit I am dually registered IAR and Reg Rep.

I find that some folks, particularly older clients, prefer not to pay fees.

Joe

I guess we will revisit this later in the year.

by the way, I sat in on a conference call with the manager of the Ager China fund. Of course he was positive but when I ask about liquidity, currency, accounting, and how mutual fund inflows are pushing up the prices ect, I decided this was an area to get out of...ASAP. I still believe the dollar will still decline this year and international should do well, but i am getting out of Emerging markets. Since this is a fixed income board, what about international bond funds? get out or stay in?? 

[quote=aldo63]

Joe

I guess we will revisit this later in the year.

by the way, I sat in on a conference call with the manager of the Ager China fund. Of course he was positive but when I ask about liquidity, currency, accounting, and how mutual fund inflows are pushing up the prices ect, I decided this was an area to get out of...ASAP. I still believe the dollar will still decline this year and international should do well, but i am getting out of Emerging markets. Since this is a fixed income board, what about international bond funds? get out or stay in?? 

JoeDaMan,

You think the dollar will strengthen? What are your thoughts on that...

[quote=blarmston]

JoeDaMan,

You think the dollar will strengthen? What are your thoughts on that...

[quote=joedabrkr]

I am out of international bonds right now due to expected strength in the dollar…
[/quote]



I disagree with that, mostly because alot of dollar strength comes from
the fact that it is a high(er) yeilding G7 currency. I think currency
markets are a complete mystery though…



What is notable is how much FOREX affects international investments. PID had a huge run up b/c of this. The currency hedged EEM/EFA indexes did not do so well as the USD index.



PIMCO runs a nice ex-US bond fund, which makes a good complement to otherinternational investments.

[quote=aldo63]

by the way, I sat in on a conference call with the manager of the Ager China fund.

[quote=AllREIT]



I disagree with that, mostly because alot of dollar strength comes from
the fact that it is a high(er) yeilding G7 currency.

[/quote]

That, my friend, is what makes a market!

FYI I “think” the Pimco fund you mention uses hedging.  Makes currency fluctuations less relevant if they do it right.

Interesting discussion so far. Here’s a question: Many of the replies advocate staying short. Many of the replies advocate the use of funds. How does staying short, and how will funds protect income of today’s INCOME investor. Again, we could care less about total return. We only care about delivering income.

I'm staying short.  Hindsight tells us that staying short in the early 80's was a mistake, but today's baseline number is far different than 18-20%.  Will taking 5% in the 1-3 year range hurt my clients?  Only time will tell, but it's a risk that I and my clients have accepted at this point.

For income, I'm using a variety of income plays apart from bonds, including the latest...covered call ETFs yielding north of 8%.  VA's with income and principal guarantees are yet another tool that works for some of the population.  There's no magic bullet and not any one strategy works universally, but if you're looking for income, it's probably prudent to include other vehicles in addition to bonds, even if you are a "Bondguy"...

...and BG, I'm not implying that your universe is limited to bonds...just a little tounge-in-cheek...

Many of the replies advocate the use of funds. How does staying short, and how will funds protect income of today's INCOME investor. Again, we could care less about total return. We only care about delivering income.

I think there are a lot of ways you can protect income. Doing your own research is great - higher net worth clients increasing expect their advisors to show new ideas and fancy strategeis.

The comment about pulling back from international bonds, due to a strengthening dollar is interesting. I'd rather delegate this decision, as well as the timing of duration, quality etc. - to the managers of various multi category strategic bond funds. Still have the usual cash, laddered cds, stock market certificates, and TIP funds, etc.

Bond funds can get hammered during the economic cycle, but I think flexible allocation goals in the multipurpose bond funds will help with that risk, compared with some of the products we had in the early 90s.

Since inflation is a risk, stock dividends, convertibles, preferrreds etc, are still very important. But I delegate in funds

And no matter how you cut it, guaranteed income products will be extremely important to the retiring boomers so they can't outlive their income. No individual security will fill the bill - we already had that discussion.  

Not very sophisticated on my part, but it seems to work okay.

[quote=Indyone]

I'm staying short.  Hindsight tells us that staying short in the early 80's was a mistake, but today's baseline number is far different than 18-20%.  Will taking 5% in the 1-3 year range hurt my clients?  Only time will tell, but it's a risk that I and my clients have accepted at this point.

For income, I'm using a variety of income plays apart from bonds, including the latest...covered call ETFs yielding north of 8%.  VA's with income and principal guarantees are yet another tool that works for some of the population.  There's no magic bullet and not any one strategy works universally, but if you're looking for income, it's probably prudent to include other vehicles in addition to bonds, even if you are a "Bondguy"...

...and BG, I'm not implying that your universe is limited to bonds...just a little tounge-in-cheek...

[/quote]

No prob with a little tonuge in cheek jabbing. The purpose of this thread is to get everyone thinking about how best to protect income. Technically, there are no wrong answers.

 My questioning of staying short goes to the  issue of betting client's future income on an interest rate prediction. 5% plus is OK today, but it get's ugly down the road if the yield curve proves to be an accurate predictor of rates going lower. Thus the yield curve trap.

My questioning of the use of funds goes to the fact that funds offer absolutely no income protection in a down rate scenerio. Shareholders counting on income come up short, while fund managers thump their chests over their spectacular total returns.

I like many of the solutions I've read. The use of preferreds,and div paying stocks gets an A+ in my book. Covered calls and covered call funds also, a good idea. Buying some long term paper of choice today, also in my book a good way to go.

I have one client who will only buy the longest investment grade paper out there, tax free. Her attitude is "Just buy bonds" when she has the money to do so. She doesn't care about interest rate predictions. She's told me many times. nobody knows, so why worry about it. Just show her the highest yield paper within her default risk parameters. She's in her eighties and sharp as a tack. She has a lot of money split between me and a wirehouse broker. With me, she's all tax free.

Think about this for a moment. This woman does nothing fancy. She just buys bonds. Her account today yields well over 5%, maybe as high as 6% tax free. A few years ago it was still over 8%. She has never lost a cent of income to the porfolio insurance strategies of laddering, bar bell, or similar play it safe techniques. She wants income and she's maxed it out. Sometimes keeping it simple is something to consider. How many thousands of dollars have we, as the smartest minds on the planet, talked clients out of by complicating the matter with our strategies? Strategies based on predictions? Strategies that take the predictions off the table? With this client that answer would be zero.

  How many thousands of dollars have we, as the smartest minds on the planet, talked clients out of by complicating the matter with our strategies? Strategies based on predictions?

Strategies based on trying to outthink the market, add value to a brutally competitive 24/7 global market place.

"Just buy bonds" is the fixed equivalent of Buffet's, "just own companies on the up verticle supply side of basic industries".

Keep it simple and sustainable.

My speciality is the mass affluent market. I feel sorry for advisors catering the affluent, who are not either continually specializing, or who are continually splitting the basic portfolio managment functions into fine hairs - trying to time segments, focus on costs, focus on performance. The strategic value added at low cost could be costly. That can only 'end badly for everyone'.

Certainly staying short has it’s risks, and I’m not here to call the bond curve prediction wrong, but the curve notwithstanding, I have a pretty strong feeling that the risk/reward is in favor in keeping clients short.  Hopefully, this thread will be preserved and we can revisit the issue at the beginning of the next three years and see where things actually ended up.  Those are some of the best lessons we can get…the benefit of 20/20 hindsight…

[quote=BondGuy]Again, we could care less about total return. We only care about delivering income.[/quote]



That’s silly. Give me $1000 and I’ll guarantee I’ll get you a 10% return for 10 years.



I can also do a 20% return for 5 years if you would prefer that.

"I have one client who will only buy the longest investment grade paper out there, tax free. Her attitude is "Just buy bonds" when she has the money to do so. She doesn't care about interest rate predictions. She's told me many times. nobody knows, so why worry about it. Just show her the highest yield paper within her default risk parameters." Bondguy

Net result? She has a defacto bond ladder. Maybe it's not exactly smooth, but she probably always has bonds maturing, being called, being Pre Re'd tons of interest each month. It's a wonderful thing! Short term rates? What does she care? Her six month paper is yielding 5.35% (at least that's what she told me!)

Mr. A

[quote=joedabrkr]

[quote=AllREIT]



I disagree with that, mostly because alot of dollar strength comes from
the fact that it is a high(er) yeilding G7 currency.

[/quote]

That, my friend, is what makes a market!

FYI I “think” the Pimco fund you mention uses hedging.  Makes currency fluctuations less relevant if they do it right.
[/quote]



PIMCO offers unhedged and hedged xUS funds.The hedged funds don’t yield very much. I use the unhedged fund to complement allocations to xUS stocks.



More seriously, we all know about ladder’d bond portfolio’s and so bond
funds are great way to reduce default risk and keep a target duration.

The marginal return from owning longer paper over shorter paper does not offset the added portfolio volatility.



This is the best article on bonds ever written:



http://www.pimco.com/LeftNav/Viewpoints/2006/Role+of+Bonds +6-2006.htm



Basicly I classify a portfolio like so



Stable Cashflow (Bonds)

Variable Cashflow (MM + Loans)

Growing Cashflow (Dividend stocks + TIPS)

No Cashflow (Microcap stocks + Other risk assets)

[quote=joedabrkr] [quote=aldo63]

i am more concerned about the residential real estate market than floating rate funds. I do not use the leveraged floating rate products. The senior bank loan market is more liquid than the longer term high yield market and certainly more than real estate which I believe the defaults are coming. There is much more money  in loans to higher credit risk customers, small business,developers,ect than senior floating rate funds. There is a market for floating rate loans,where real bank loans to a small busines have no liquidity. If you put a credit rating on most small business it would be in the junk range. Many banks will fail if this scenerio happens. So what you are saying is that we are going to have a 1929 type collapse? If that is the case, i believe in the put you money in a shoebox theory.

We also had this discussion on this board early last year and NOTHING HAPPEND except a 7.5% return on the highland floating rate fund.

[/quote]

Actually we had the conversation early in the 4th quarter, and that's when I decided to make the move...
[/quote]

I second that.  I told my clients "We are probably 6 -12 months early moving out of floating rate, I'd rather be 6 months early than a day late"  There is so much CD money that is in floating rate because it was sold solely on the yield.  When NAVs start to decline, and people head for the exits (and have to wait up to 90 days) at the same time, it will barely matter which fund company you are with.  My clients appreciate that they were in floating rate for the "easy money"  moved it all to  agencies and munis.