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Post by Admin/YBB on Dec 23, 2020 8:28:14 GMT -6
Funds 1.0
FUNDS 1.0. These are pools of securities & there is a huge variety. MUTUAL FUNDS are open-end funds [OEFs] that can be bought or sold at net asset values [NAVs] determined daily at the market-close [4:00 PM Eastern time]. Exchange traded funds [ETFs] trade on exchanges during market hours & have bid-ask quotes just like stocks. Besides this retail trading of ETFs, there are large scale in-kind creations & redemption processes by authorized participants that can expand or shrink ETF assets under management [AUMs]. Due to these dual trading processes, the ETF prices track their NAVs closely, but significant deviations may occur due to market or other disruptions. Closed-end funds [CEFs] raise assets only through initial public offerings [IPOs], secondaries or preapproved shelf-offerings. They trade with bid-ask quotes on exchanges; as their AUMs remain stable, significant premiums/discounts from NAVs may develop. INTERVAL-FUNDS can be bought at any time but there are restrictions on redemptions; only small amounts can be redeemed quarterly or on other schedules. Due to the nature of their AUMs, CEFs & interval-funds are more suitable for illiquid [hard-to-trade] securities. Unfortunately, many OEFs & ETFs also have illiquid securities & this may create problems during market turmoil. There are also separately managed accounts [SMAs], or just separate accounts, that can be thought of as customized pools of funds tailored to specific groups. Banks, brokers & fund companies also offer funds called collective/commingled investment trusts [CITs]. These have fewer disclosure requirements, have lower fees & their prices may be available daily or weekly only through sponsors’ websites or customer service. Stable-value funds [SVs] offered within workplace retirement plans guarantee principal & accumulated interests. These are short/intermediate-term bond portfolios that have some restrictions on deposits, withdrawals &trading.
Fund portfolio management strategy may be ACTIVE [with frequent buying & selling of securities] or PASSIVE that just follows some specified index & REBALANCES few times a year.
OEFs, ETFs, CEFs, interval-funds & separate accounts are regulated by the Securities & Exchange Commission [SEC]; insurance regulators also have oversight over insurance separate accounts. CITs are regulated by the Office of Comptroller of currency [OCC/Treasury]. Depending on their sponsor, SVs may be regulated by SEC, OCC or insurance regulators. #PersonalFinance, 12/23/20.
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Post by Admin/YBB on Dec 25, 2020 7:58:08 GMT -6
Funds 1.1 - Mutual Funds
Funds 1.1. MUTUAL FUNDS [open-end funds/OEFs] are good for most investors. They can be bought/sold only at prices at market close [4:00 PM Eastern except for some holidays]. They make reinvestments of distributions [dividends, realized capital gains (CGs}] very easy – at NAV on ex-dividend dates. All mutual funds have operating expenses [expense ratios (ERs)] that cover administration, record-keeping, portfolio management; lower ERs are generally better. Indexed mutual funds have very low ERs & some now have zero ERs [but they make money in other ways such as securities lending]. Some specialized funds with famous managers may charge higher ERs but that doesn’t guarantee better performance. If a fund uses leverage directly or through derivatives, the related extra expenses are also included in their ERs, so those may seem high.
There are many NO-LOAD OEFs that don’t charge commissions to buy/sell; many can be bought directly from fund families; others may be available via 3rd party brokerage no-transaction-free [NTF] platforms; these may have 60/90 day holding period restrictions. In LOAD FUNDS, moist of the load goes to the selling agent as commission; the idea at one time was that the selling agent may help you with initial fund selections, subsequent changes & may also provide hand-holding during periods of market volatility. But lot of information is now readily available on the web & there isn’t any good reason to buy load-funds. Some load funds still justify them by saying that loads are on graduated scale & if you buy in large amounts [often $1+ million], they may be waived. They weaken their own argument by sometimes also offering no-load classes, or by selling them load-free at 3rd party brokerage NTFs. Fund CLASSES may create confusion: A-front-load, B-backend-load, C-level-load, I-institutional, F or D-3rd party NTF class, R-retirement class, Y or Z-no-load, 529X-college 529 class, etc. #PersonalFinance , 12/25/20 AM.
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Post by Admin/YBB on Dec 29, 2020 9:30:11 GMT -6
Funds 1.2 - ETFs/ETNs
Funds 1.2. ETFs are exchange traded funds that trade like stocks. Recently, most brokerages have moved to commission-free trading of stocks & ETFs. This will provide a boost to ETFs that have the advantages of tax efficiency. Their IN-KIND CREATION & REDEMPTION processes via authorized participants allow them to get rid of their lowest-cost shares first without any tax consequences [this is opposite to what most investors do – they tend to sell highest-cost shares first]. These processes allow the ETF prices to track NAVs closely, but PREMIUMS/DISCOUNTS may appear during market turmoil or when creation/redemption process are disrupted [e.g. sponsors not issuing shares or foreign ETFs caught by currency controls]. Note that ETFs only reduce the possibility of realized capital gain [CG] distributions, not eliminate those [in 2020, some ETFs had shockingly high CG distributions]. Most ETFs [96%] are INDEXED to widely available or customized indexes [including smart-beta/factor ETFs].
ACTIVE ETFs [4%] are also gaining in popularity after the SEC recently relaxed rules. Active equity ETFs use variety of ways to get around [or, dilute] the daily portfolio disclosure requirement of the ETFs [basically, they are semi-transparent]; fear has been that others may do front-run trades if the ETF portfolios are fully transparent. This is not an issue with bond ETFs & several active bond ETFs already exist. The recent development of FRACTIONAL-TRADING may lead one day to wider adoption of ETFs in workplace 401k/403b plans. ETNs are debt instruments linked to indexes & are debt obligations of the sponsors; they tend to be redeemed or dissolved at the most inopportune times for investors. Unfortunately, the recent capping [by the SEC] of leverage for ETFs to +/- 2x, but not for ETNs, may lead to unintended consequence of more new ETNs. #PersonalFinance , 12/29/20 AM.
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Post by Admin/YBB on Jan 12, 2021 9:39:29 GMT -6
Funds 1.3 - CEFs Funds 1.3. CEFs are closed-end funds that have fixed number of shares. Their assets grow only from IPOs, secondaries, pre-approved shelf-registrations & consolidations [M&A]. So, large PREMIUMS or DISCOUNTS may develop depending upon whether their investment areas are in demand or out-of-favor. They are good vehicles for illiquid & hard-to-trade assets. Almost 2/3rd are bond CEFs, 1/3rd stock CEFs. Most use LEVERAGE & their ERs tend to be high because costs of leverage are included in the ERs. Beware that the stated leverage by convention is as % of GROSS ASSETS; this significantly understates their leverage compared to % of NET ASSETS that CEF holders experience through volatility [this convention is used by leveraged ETFs]. Many offer high distributions that may include return of capital [ROC]. Some have MANAGED DISTRIBUTION policies & keep distributions fixed; when they are not fully covered by earnings, ROCs result. ROCs may be OK if NAVs are steady or rising, but destructive if NAVs deteriorate. CEFs are quite volatile due to leverage & premium/discount that reflect demand/supply. They are complex instruments for most individual investors. There are also several ETFs of CEFs that individual investors may start with; on the other hand, CEFs of CEFs are too much of expensive double wrappers. CEFs are the oldest types of funds [since late-1800s] but they remain a small niche area for retail investors; OEFs came along in late-1920s & ETFs in early-1990s. Think of CEFs, OEFs, ETFs as different kinds of wrappers for funds, not as asset classes. #PersonalFinance , 1/12/21. Edit/Add, 12/3/23. Old CEFs from CEFConnect Screener, www.cefconnect.com/closed-end-funds-screenerGAM (1927; equity), TY (1929; hybrid), PEO (1929; natural resources), ADX (1929; equity), ASA (1958; precious metals mining), SOR (1968; hybrid), VBF (1970; inv-grade), JHI (1971; inv-gr), INSI (1971; inv-gr), MCI (1971; HY), BCV (1971; convertibles), STEW (1972; equity), PAI (1972; inv-gr), JHS (1973; inv-gr), CRF (1973; equity).
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Post by Admin/YBB on Jan 19, 2021 8:02:35 GMT -6
Funds 1.4 - Stable Value Funds
Funds 1.4. STABLE-VALUE [SV] or guaranteed-income funds are available only in WORKPLACE RETIREMENT plans. They GUARANTEE principal & accumulated interest, so they are almost riskless. However, the guarantee is by an INSURANCE COMPANY, so the soundness or credit rating of the insurance company is important; workouts of failed insurers take years, so it is best to stick with highly rated companies. SVs are short/intermediate-term bond portfolios with INSURANCE WRAPPERS for guarantees. This works because participants in retirement plans do not trade a lot & there are some RESTRICTIONS on deposits & withdrawals. For example, withdrawals from SV may not go directly into competing fixed-income [FI] funds, typically money-market funds, short-term bond funds, etc. A 30-90 day EQUITY-WASH may be required, i.e. the SV funds may have to first go into stock & bond funds with market risks before going into competing FI funds; there may also be restrictions on moving funds back into the SV. There may be provisions to protect the SV in case of company RESTRUCTURING or mass layoffs to avoid sudden huge withdrawals from the SVs. There may also be provisions to not offer guaranteed stable-values on cash-out to employees FIRED FOR CAUSE. Many of these restrictions are possible only within retirement plans, so the SVs are not offered outside of the workplace retirement plans.
There are some SVs that are NOT BACKED by insurance companies or by sponsors’ reserves, but their sponsors say that they invest very conservatively. This works only until it doesn’t. In these cases, it may be prudent to stick with SVs from large companies who at least have their reputations to protect.
A unique SV fund is the G Fund within the federal TSP 401k that is guaranteed by Uncle Sam. It invests in specially issued US Treasuries that are rolled over daily. Whenever the Government faces debt-ceiling, it temporarily suspends these daily rollovers & that helps the Government with its operations until the Congress adjusts the debt-ceiling; it is among several tools in Treasury’s toolkit. The G Fund holders never face any risks from these Government maneuvers.
Another unique SV is the TIAA TRADITIONAL that has a series with different interest crediting terms [minimum rates, current rates, vintage rates] & withdrawal restrictions [from almost none to several years]. It existed even before the term SV came into existence & it has some unique features not found in other SVs, so some prefer to call it SV-like. #PersonalFinance , 1/19/21.
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Post by Admin/YBB on Feb 17, 2021 7:23:32 GMT -6
Funds 1.5 - Investment Areas
Funds 1.5. What are the INVESTMENT AREAS of funds? These include equities [stocks], fixed-income [bonds], stock-bond mix [allocation/balanced or hybrid], physical commodities [e.g. gold, silver], commodity futures [for oil, grains, etc]. Equity funds may be categorized by market-cap [small/ mid/ large-caps], strategies [growth, value, dividend/ income], foreign exposure [developed, emerging, frontier, global/ world]. Bond funds may be categorized by maturities/ durations [short/ intermediate/ long], credit-quality [core, core-plus, multisector, HY], tax-exemption [municipal bonds or munis], foreign exposure [developed, emerging, global]. Some funds specialize in sectors, natural resources, real estate, convertible bonds, preferred stocks, long-short strategies [including market-neutral], countries/ regions, etc. Investment areas beyond stocks & bonds are called ALTERNATIVES. MULTI-ASSET funds [with stocks, bonds, alternatives] promise to do the “driving” for you. For a portfolio consisting of a wide range of investments, the notions of effective-equity [post 11/19/20] & portfolio allocation [post 11/20/20] are useful.
DIY investors must devote some time & effort to manage portfolios. Others may hire financial ADVISORS & pay them fees on flat or %asset basis; this is another top-level fee beyond the ERs of funds used. Some funds or classes are available only through advisors. Be clear about the services you are getting from financial advisors; otherwise simply buy some good no-load, low-cost target-risk funds [conservative/ moderate/ aggressive-allocation] or multi-asset funds or target-date funds [TDFs]. A recent trend is the use ROBO-ADVISORS that assess your investment profile based on online questionnaires & recommend hybrid portfolios that adjust automatically; several have phone apps favored by younger phone-savvy generation. #PersonalFinance , 2/17/21.
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Post by Admin/YBB on Oct 4, 2021 15:50:25 GMT -6
Funds 1.6 – Futures-Based Funds
Funds 1.6. FUTURES-BASED funds use futures to achieve desired exposure to stocks or commodities. Some bond specialist firms without big equity research departments use equity INDEX FUTURES to achieve 100-150% equity exposure & invest the rest of the portfolio assets (90-95%) in bonds. These funds may have high distributions as otherwise long-term capital gains become short-term gains through derivatives trading & these may be best held in tax-deferred/free accounts.
Several COMMODITY funds (for oil, grains, base metals, multi-commodity) are futures-based. A commodity can be in CONTANGO (with futures-curve up-sloping, indicative of normal supply & demand) or BACKWARDATION (with futures-curve down-sloping, indicative of tight supplies). As these funds have to ROLL futures periodically, backwardation benefits the funds but contango imposes roll-costs.
LEVERAGED ETFs can use futures for almost anything tradable to achieve positive +1x, +2x, +3x leverage, or INVERSE -1x, -2x, -3x leverage. These ETFs try to achieve this leverage on daily basis & diverge significantly from their stated leverages over longer-term. The SEC & FINRA have issued warnings that such leveraged funds should be used for short-term trading only. In October 2020, the SEC imposed restrictions to limit leverage to +/- 2x for such new ETFs, but the older ETFs with +/- 3x leverage can continue to exist. Sometimes there are both +nx & -nx leveraged ETFs for the same futures product & one the two may go bust or may requires reverse-splits. The SEC has not acted on crypto-ETFs, but it has been reported in the news that the SEC Chairman GENSLER is more favorable to crypto-futures-based-ETFs (vs actual crypto-holding-ETFs).
ETNs are really debt instruments from sponsors & are exempt from the above SEC restrictions. An unintended consequence may be more leveraged ETNs. Often, these tend to be redeemed or dissolved at the most inopportune times for investors. #PersonalFinance 10/4/21.
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Post by Admin/YBB on Oct 27, 2021 7:31:42 GMT -6
Big ETF Launches M* has a good article on the new futures based Bitcoin ETF BITO (2021) and BTF (2021), and a comparison with other big ETF launches such as physical gold-bullion USO (2004), physical silver-bullion SLV (2006), futures-based crude oil/WTIC USO (2006), etc. www.morningstar.com/articles/1063022/bitcoin-etfs-should-you-jump-on-the-bandwagon(highlight link text--Go to http://www....; or highlight link text--copy (don't copy link address)--paste in a new tab to open)
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Post by Admin/YBB on Nov 20, 2021 9:22:54 GMT -6
M* on CITs (Collective/Commingled Investment Trusts): Don't Know About CITs? You Probably Shouldwww.morningstar.com/articles/1063956/dont-know-about-cits-you-probably-should(highlight link text--Go to http://www....; or highlight link text--copy (don't copy link address)--paste in a new tab to open) Article also appeared on M* Facebook feed and I commented on it. LINK" Yogibearbull Ybb
Q1: Few years ago, I asked M* whether some mutual fund outflows at major firms were just shifting into CITs. M* said at that time that it didn't track flows for CITs. Has that changed now? Q2: CITs are regulated by bank OCC (not the SEC). If there is too much opacity, why not suggest reforms to OCC? Less regulation/disclosure is OK, but important information should still be disclosed."
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Post by Admin/YBB on Dec 22, 2021 17:40:05 GMT -6
Newer CEFs vs Older CEFs
Closed-end funds (CEFs) are complex – IPOs, secondaries, rights-offerings, premiums/discounts, leverage of various types, activist actions. The CEF structure is quite old (late-1800s) but due to its complexity, it never caught on with the masses and other structures have evolved – mutual funds/OEFs (mid/late-1930s), ETFs (early-1990s), interval-funds (1990s (allowed)/2010s (marketed)). CEFs often develop discounts few months after their IPOs, and for many CEFs, the discounts persist, so there has been tinkering in the form of managed-distributions (not very effective), term structures, etc. There are some newer CEFs now and many investors may not be familiar with how they differ from the older CEFs. 1. The sponsoring firm pays the IPO expenses for the newer CEFs and that tends to control underwriting costs to 2-3%. The old practice was to pay underwriting costs from the fund itself and that became a gravy train for everybody with costs typically 5-6%. That then led to immediate premium for older CEFs post-IPO, subsequent price weakness and investor disappointments that led to post-IPO discounts few months after the IPO. The newer CEFs try to avoid this – as the sponsor is paying the underwriting costs, the CEF can deploy 100% of the assets raised, and the sponsor has good reasons to control the underwriting costs. But why is the sponsor so generous? Don’t forget that the sponsor will make lots of money later from portfolio management, fund administration and servicing, and it will more than recover its initial out-of-pocket costs. So, in theory, the newer CEFs shouldn’t go into post-IPO discounts, but if most CEF investors believe that will happen, then that will happen, and present buying opportunities for the newer CEFs. 2. The newer CEFs have a special term structure. Typically, there is 12-year term, but the termination date has some flexibility. The CEF board can extend the termination date first by 1 years, and then by another 0.5 years, so by 1.5 years total. Another possibility is that within 12 months of the termination date, the CEF board can make tender offer for 100% of shares at NAV if a sizable residual fund can remain as viable (the size can be specified at IPO) for holdouts (interested holders); if there are not enough holdouts to meet the threshold for residual fund, then the entire tender offer is cancelled and the CEF must be liquidated by 12-13.5 years. This means that if there is sufficient interest in continuing the fund, then most CEF holders are bought out at NAV, but a small remainder CEF can continue with unlimited term for the holdouts (interested holders) and the CEF has no further obligation to make tender offer for shares (although it can as any CEF can); this is the only way the mini-CEF can continue beyond 13.5 years This has an interesting implication for CEF holders who buy it at discount during market disruptions – they are guaranteed to be made whole during a termination window that may go from slightly less than 12 years to 13.5 years and that can kick in additional returns. In time the CEF investors will start to distinguish these newer CEFs from the Older CEFs, but until then, take advantage of the inefficiencies that may develop during market selloffs that hit all CEFs. Examples of 2 such newer CEFs are of current interest to me: First, the new multisector bond CEF PDO (inception 1/29/21). If you are wondering why Pimco needed another multisector bond CEF when it already has PDI (that now has former PKO and PCI merged into it), you now know why – PDI is with the older CEF structure and PDO is with the newer CEF structure. Second, Thornburg income-builder/world-allocation/multi-asset TBLD (inception 7/27/21) that is a cousin of its mutual fund TIBAX/TIBIX. For a brief introduction to CEF structures, see www.nuveen.com/en-us/insights/closed-end-funds/closed-end-funds-structures
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Post by Admin/YBB on Jan 24, 2022 7:39:44 GMT -6
Which CEF leverage?
CEF leverages as stated by websites (funds, M*, CEFConnect, etc) are understated. This is shown by an example for the new PDI and Pimco website data are used as those at M* and CEFConnect have major errors. www.pimco.com/en-us/investments/closed-end-funds/dynamic-income-fundAs stated by Pimco: Total Assets $9.420 billion, Net Assets $5.388 billion, Leverage 42.80% But this reported leverage is debt/total assets and understates what PDI holders experience. They experience debt/Net Assets that is 74.8%, or Total Assets/Net Assets that is 1.748. To elaborate, if you start with $1,000 (your equity), borrow $748, and invest the total $1,748, your gains and losses are on your initial $1,000, or whatever becomes of it after gains/losses. The borrowed amount $748 remains the same and has to be paid back eventually (with interest). So, your personal leverage is 74.8% or 1.748x with respect to your equity; actually, it goes up alarmingly as you lose money. The CEF leverage stated as required by the SEC is on total amount, $1,000 plus borrowed $748. It is more like asset coverage of debt for regulatory purposes and everybody is required to use this metric. As a convention, that is fine, but it greatly understates the leverage experienced by the CEF holders. Without this understanding, the CEF holders may find themselves overexposed to the CEF risks and may panic during the selloffs.
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Post by anitya on Jan 24, 2022 17:14:29 GMT -6
I think it is a disservice that data service providers like M* do not automatically provide the personal leverage number. Unfortunately, as the regulatory leverage ratio goes up, personal leverage ratio increases geometrically higher. Leverage ratios of a managed product do not tend to change too much as the market price goes up or down because managers tend adjust (buy or sell) asset size to keep the leverage ratio about the same but in a fast moving market, there can be a lag in leveraging up when the markets move up and potential front running sale of assets by the manager when markets are moving down fast. This can further cause the investor to experience less benefit and worse loss from leverage. Leverage products are the best during stable market conditions where the manager can take advantage of slowly evolving / trending markets. Investors that do not like trading, leveraged products can be very challenging during periods of market turmoil and it may be better to stay away from these products during those times. For regulatory purposes, leverage ratio needs to be met as an average over a specific period of time and not at a moment of time. Managing leverage is a skill not every manager gets it right. Below are some resources about leverage (that do not necessarily directly address the above issues). www.nuveen.com/en-us/insights/closed-end-funds/understanding-leveragewww.blackrock.com/us/individual/literature/investor-education/spotlight-leverage-cefs.pdf
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Post by Admin/YBB on Feb 23, 2022 17:54:07 GMT -6
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Post by anitya on Feb 24, 2022 1:11:44 GMT -6
That is the one for the die hard faithful.
A quick search of the SEC filing did not reveal but I expected this fund to be restricted to accredited investors. Footnote 1 of the filing, "Generally, the stated minimum initial investment by an investor in the Fund for Shares is $1,000, which stated minimum may be reduced for certain investors . . ." surprised me.
I would be interested to know the level of investor interest (i.e,. inflows (not talking heads)) this fund generates over time - not a recommendation and I do not expect to ever have enough money not to know what to do with it to invest in this.
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Post by Admin/YBB on Feb 24, 2022 11:12:49 GMT -6
anitya , ARK made a huge splash in the active ETFs. It will make another huge splash in the interval-funds. This news is noted for that. There isn't any separate post on interval-funds yet although they are mentioned in several and this would do for now for highlighting them. I am not recommending the one from ARK but there are 69+ to look at. In the weekend Barron's, they are listed under CEFs as continuously-offered.
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