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

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Booogle
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Re: Why not 100% PSLDX?

Post by Booogle »

If we established PLRIX reflects the bond portion of PSLDX, what explains PLRIX's NAV going up and down?

It seems to go up and down regardless of interest rate.

https://finance.yahoo.com/quote/PLRIX/chart?p=PLRIX
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cflannagan
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Re: Why not 100% PSLDX?

Post by cflannagan »

Booogle wrote: Tue Sep 14, 2021 6:42 am If we established PLRIX reflects the bond portion of PSLDX, what explains PLRIX's NAV going up and down?

It seems to go up and down regardless of interest rate.
Not sure I understand your question? Bond funds/ETFs goes up and down because the value of bonds goes up and down. PLRIX behaves just like any other bond funds.

But if you're asking why bond values change.. let's say you bought an awesome bond with 10% rate. Then the rate changes, it's now 9%. So new bonds will have only 9%, while you still have your bond that pays out 10%. Your bond is now more valuable if you sell it. That's how bond value change over time.

Of course it's more nuanced than this. This might be of interest to you, if you want to dive in https://portfoliocharts.com/2019/05/27/ ... convexity/
RosieQ
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Re: Why not 100% PSLDX?

Post by RosieQ »

Looks like just the threat of rising interest rates over the last few weeks has caused PSLDX to underperform. Hope that it's just an overreaction vs priced in for a 0.25% or so hike in the future.
sigma_frq1
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Re: Why not 100% PSLDX?

Post by sigma_frq1 »

Are PSLDX dividends qualified?
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kwyjibo
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Re: Why not 100% PSLDX?

Post by kwyjibo »

sigma_frq1 wrote: Thu Oct 14, 2021 8:31 pm Are PSLDX dividends qualified?
Mostly no, they are not
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cflannagan
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Re: Why not 100% PSLDX?

Post by cflannagan »

If you were to work on a spreadsheet trying to calculate the total overall leverage you have on your portfolio - assuming the most basic asset classes: equities and bonds, that's it, how would you assign the % to each of those for PSLDX?

I've seen 100% equities, 100% bonds mentioned, but when I went to Personal Capital, it seems to be showing something a bit different:

Image

Seems to be saying 100% stocks, 128% equities, 10% "alternative" (probably real estate, so I'd categorize as equities if that is the case). Which seems to be suggesting 2.4x leverage rather than 2x if it's just 100/100 equities/bonds?

Hope someone can help me out here. The difference between 100/100 vs 110/128 equities/bonds does not seem that minor to me, so if I'm trying to calculate the overall leverage ratio of my entire NW, I want to make sure I an plugging in the correct numbers. Thanks in advance for any help.
CletusCaddy
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Re: Why not 100% PSLDX?

Post by CletusCaddy »

It is no secret that PSLDX has underperformed this year due to rise in interest rates.

Has anyone considered pairing PSLDX with PSPTX? The latter invests in an “absolute return” bond strategy instead of exclusively long duration bonds, and has consistently outperformed the S&P by 1-2% annually. YTD it has matched the performance of the S&P.

I’m thinking about doing a 50/50 mix of PSLDX and PSPTX to better accommodate the interest environment we are in today while maintaining the upside.
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cflannagan
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Re: Why not 100% PSLDX?

Post by cflannagan »

CletusCaddy wrote: Fri Oct 15, 2021 4:33 pm It is no secret that PSLDX has underperformed this year due to rise in interest rates.

Has anyone considered pairing PSLDX with PSPTX?
Not really. I don't base my decisions on just a year's (in this case, less than a year's) worth of performance.
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

CletusCaddy wrote: Fri Oct 15, 2021 4:33 pm Has anyone considered pairing PSLDX with PSPTX? The latter invests in an “absolute return” bond strategy instead of exclusively long duration bonds, and has consistently outperformed the S&P by 1-2% annually. YTD it has matched the performance of the S&P.
With very similar stddev and 4.5% less in CAGR, I don't think it's worthwhile to hold PSPTX. Keep in mind that future interest rate prediction is just as difficult as stock performance prediction. Of course, given the likelihood of rising interest rate, PSLDX will likely underperform in the next 2 years based on inflation projection and fed comments. But that's part of the price to pay for potential outperformance in the long run.
CletusCaddy
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Re: Why not 100% PSLDX?

Post by CletusCaddy »

jarjarM wrote: Fri Oct 15, 2021 6:05 pm
CletusCaddy wrote: Fri Oct 15, 2021 4:33 pm Has anyone considered pairing PSLDX with PSPTX? The latter invests in an “absolute return” bond strategy instead of exclusively long duration bonds, and has consistently outperformed the S&P by 1-2% annually. YTD it has matched the performance of the S&P.
With very similar stddev and 4.5% less in CAGR, I don't think it's worthwhile to hold PSPTX. Keep in mind that future interest rate prediction is just as difficult as stock performance prediction. Of course, given the likelihood of rising interest rate, PSLDX will likely underperform in the next 2 years based on inflation projection and fed comments. But that's part of the price to pay for potential outperformance in the long run.
If you mix PSPTX with PSLDX the reduction in CAGR is only 2% vs PSLDX alone since inception in 2007. And still handily beating the S&P. And we’re not starting from 2007 rates.
international001
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Re: Why not 100% PSLDX?

Post by international001 »

PSLDX beat VTI if you backtest 2 or more years.
If you are planning to beat VTI every single year, perhaps is the wrong bet.

What is PSPTX? From PV, it seems like VTI
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

CletusCaddy wrote: Fri Oct 15, 2021 4:33 pm It is no secret that PSLDX has underperformed this year due to rise in interest rates.

Has anyone considered pairing PSLDX with PSPTX? The latter invests in an “absolute return” bond strategy instead of exclusively long duration bonds, and has consistently outperformed the S&P by 1-2% annually. YTD it has matched the performance of the S&P.

I’m thinking about doing a 50/50 mix of PSLDX and PSPTX to better accommodate the interest environment we are in today while maintaining the upside.
I had both 3 or 4 years ago, when PIMCO was briefly available "normally" through Fido. I bought it and also the small cap variant of stocksplus. I only kept PSLDX because it's the only one that really performs noticeably over and above the S&P. and it has the highest sharpe ratio. "absolute return" sounds good, but on the charts it kinda looks like the S&P500 leveraged 1.2X to me, which is available much more cheaply. All the funds started in 2008, so there is some history there to think about.

I never thought about a 50/50 mixture of the two. That looks pretty good on PV, but the sharpe ratio, if we care, is lower than that of PSLDX.
Last edited by firebirdparts on Wed Oct 20, 2021 9:40 pm, edited 1 time in total.
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jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

CletusCaddy wrote: Fri Oct 15, 2021 11:15 pm
jarjarM wrote: Fri Oct 15, 2021 6:05 pm
CletusCaddy wrote: Fri Oct 15, 2021 4:33 pm Has anyone considered pairing PSLDX with PSPTX? The latter invests in an “absolute return” bond strategy instead of exclusively long duration bonds, and has consistently outperformed the S&P by 1-2% annually. YTD it has matched the performance of the S&P.
With very similar stddev and 4.5% less in CAGR, I don't think it's worthwhile to hold PSPTX. Keep in mind that future interest rate prediction is just as difficult as stock performance prediction. Of course, given the likelihood of rising interest rate, PSLDX will likely underperform in the next 2 years based on inflation projection and fed comments. But that's part of the price to pay for potential outperformance in the long run.
If you mix PSPTX with PSLDX the reduction in CAGR is only 2% vs PSLDX alone since inception in 2007. And still handily beating the S&P. And we’re not starting from 2007 rates.
But if the expectation is that we're not starting with 2007 rates and rates will move higher, why not just do S&P 500. If the expectation is that we don't know where rate is going, then PSLDX is doing better on an absolute and risk adjusted basis. If we expect rate to go down, PSLDX will do better. If we're concern about a big crash, flight to safety means PSLDX will likely do better (though definitely not guarantee), see relative performance in 2008.

So in aggregate, I feel more comfortable with PSLDX as the ballast in my tax advantaged accounts. If the rate continue to rise, there's other investments that could hopefully reduce the impact to the overall fixed income side of the portfolio. I just don't see PSPTX plays a role in that.
sigma_frq1
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Re: Why not 100% PSLDX?

Post by sigma_frq1 »

Is there a manual replication of PSLDX (using combination of ETFs) suitable for taxable account?
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Re: Why not 100% PSLDX?

Post by ChinchillaWhiplash »

sigma_frq1 wrote: Tue Oct 19, 2021 8:08 am Is there a manual replication of PSLDX (using combination of ETFs) suitable for taxable account?
Maybe NTSX with UPRO? Would not quite be able to do the 100/100 with the bond side, but would be close.
adamhg
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Re: Why not 100% PSLDX?

Post by adamhg »

sigma_frq1 wrote: Tue Oct 19, 2021 8:08 am Is there a manual replication of PSLDX (using combination of ETFs) suitable for taxable account?
Here are some options:
https://www.portfoliovisualizer.com/bac ... tion7_2=25

50/50 UBT/SSO for simplicity
25/25/25/25 TMF/VGLT/VOO/UPRO would be the equivalent with lower ER

25/25/25/25 TMF/LQD/VOO/UPRO would be a bit closer to PSDLX's AA with some corporate bonds in the mix

Or you could build your own leverage with box spreads and get almost exactly with approximately 100/100 VOO/PLRIX:

https://www.portfoliovisualizer.com/bac ... on10_1=-92
CletusCaddy
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Re: Why not 100% PSLDX?

Post by CletusCaddy »

firebirdparts wrote: Mon Oct 18, 2021 9:56 am
CletusCaddy wrote: Fri Oct 15, 2021 4:33 pm It is no secret that PSLDX has underperformed this year due to rise in interest rates.

Has anyone considered pairing PSLDX with PSPTX? The latter invests in an “absolute return” bond strategy instead of exclusively long duration bonds, and has consistently outperformed the S&P by 1-2% annually. YTD it has matched the performance of the S&P.

I’m thinking about doing a 50/50 mix of PSLDX and PSPTX to better accommodate the interest environment we are in today while maintaining the upside.
I had both 3 or 4 years ago, when PIMCO was briefly available "normally" through FIDO. I bought it and also the small cap variant of stocksplus. I only kept PSLDX because it's the only one that really performs noticeably over and above the S&P. and it has the highest sharpe ratio. "absolute return" sounds good, but on the charts it kinda looks like the S&P500 leveraged 1.2X to me, which is available much more cheaply. All the funds started in 2008, so there is some history there to think about.

I never thought about a 50/50 mixture of the two. That looks pretty good on PV, but the sharpe ratio, if we care, is lower than that of PSLDX.

If I’m going to leverage, I’m going to leverage exposure to an uncorrelated asset with independent return. That’s the theory behind PSLDX anyway. 1.2x S&P doesn’t accomplish this.

If we forget about historicals for a second. PSPTX has equivalent amount of leveraged exposure as PSLDX. Only difference is PSLDX is constrained to long bonds while PSPTX is not. Again, if we ignore historicals, which fund has higher expected returns?

Declining rates: PSLDX
Neutral rates: PSLDX
Rising rates: PSPTX

So why isn’t 66/33 PSLDX/PSPTX a good idea? If you are already bought into PSLDX you are already bought into PIMCO’s active bond management. Why wouldn’t you go one step further and trust them to pick the most profitable point on the yield curve?
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

CletusCaddy wrote: Wed Oct 20, 2021 7:02 pm If I’m going to leverage, I’m going to leverage exposure to an uncorrelated asset with independent return. That’s the theory behind PSLDX anyway. 1.2x S&P doesn’t accomplish this.

If we forget about historicals for a second. PSPTX has equivalent amount of leveraged exposure as PSLDX. Only difference is PSLDX is constrained to long bonds while PSPTX is not. Again, if we ignore historicals, which fund has higher expected returns?

Declining rates: PSLDX
Neutral rates: PSLDX
Rising rates: PSPTX

So why isn’t 66/33 PSLDX/PSPTX a good idea? If you are already bought into PSLDX you are already bought into PIMCO’s active bond management. Why wouldn’t you go one step further and trust them to pick the most profitable point on the yield curve?
The problem is that in a rising rate environment, PSPTX is going to move to the short end of the curve and the bonus on top of S&P500 is going to be quite small. In that scenario, why not just stay with 100% stock and avoid the expense that comes with active bond management. The reward so far has not justify the risk.
CletusCaddy
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Re: Why not 100% PSLDX?

Post by CletusCaddy »

jarjarM wrote: Wed Oct 20, 2021 7:12 pm
CletusCaddy wrote: Wed Oct 20, 2021 7:02 pm If I’m going to leverage, I’m going to leverage exposure to an uncorrelated asset with independent return. That’s the theory behind PSLDX anyway. 1.2x S&P doesn’t accomplish this.

If we forget about historicals for a second. PSPTX has equivalent amount of leveraged exposure as PSLDX. Only difference is PSLDX is constrained to long bonds while PSPTX is not. Again, if we ignore historicals, which fund has higher expected returns?

Declining rates: PSLDX
Neutral rates: PSLDX
Rising rates: PSPTX

So why isn’t 66/33 PSLDX/PSPTX a good idea? If you are already bought into PSLDX you are already bought into PIMCO’s active bond management. Why wouldn’t you go one step further and trust them to pick the most profitable point on the yield curve?
The problem is that in a rising rate environment, PSPTX is going to move to the short end of the curve and the bonus on top of S&P500 is going to be quite small. In that scenario, why not just stay with 100% stock and avoid the expense that comes with active bond management. The reward so far has not justify the risk.
I don’t consider 1-2% to be “quite small”. It’s smaller than what we see out of PSLDX but that’s a different bucket of beans. It’s enough to accelerate my FIRE by a few years
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

CletusCaddy wrote: Wed Oct 20, 2021 7:17 pm
jarjarM wrote: Wed Oct 20, 2021 7:12 pm
CletusCaddy wrote: Wed Oct 20, 2021 7:02 pm If I’m going to leverage, I’m going to leverage exposure to an uncorrelated asset with independent return. That’s the theory behind PSLDX anyway. 1.2x S&P doesn’t accomplish this.

If we forget about historicals for a second. PSPTX has equivalent amount of leveraged exposure as PSLDX. Only difference is PSLDX is constrained to long bonds while PSPTX is not. Again, if we ignore historicals, which fund has higher expected returns?

Declining rates: PSLDX
Neutral rates: PSLDX
Rising rates: PSPTX

So why isn’t 66/33 PSLDX/PSPTX a good idea? If you are already bought into PSLDX you are already bought into PIMCO’s active bond management. Why wouldn’t you go one step further and trust them to pick the most profitable point on the yield curve?
The problem is that in a rising rate environment, PSPTX is going to move to the short end of the curve and the bonus on top of S&P500 is going to be quite small. In that scenario, why not just stay with 100% stock and avoid the expense that comes with active bond management. The reward so far has not justify the risk.
I don’t consider 1-2% to be “quite small”. It’s smaller than what we see out of PSLDX but that’s a different bucket of beans. It’s enough to accelerate my FIRE by a few years
The problem is that with rising rate, it's less likely to get 1-2% above S&P500. This year PSPTX is essentially provide the same return as S&P500. 66/33 PSLDX/PSPTX will lag SP500. Of course, if one's position is that we know nothing of the future and just take a roll of dice on potential interest rate direction, then I guess a combo between the 2 to provided a bit better risk adjusted return going FORWARD is okay. I personally rather make a bet on stock than on bond in the current environment based on Fed's comment, even with active bond management.
Mortgasm
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Re: Why not 100% PSLDX?

Post by Mortgasm »

jarjarM wrote: Wed Oct 20, 2021 7:12 pm
CletusCaddy wrote: Wed Oct 20, 2021 7:02 pm If I’m going to leverage, I’m going to leverage exposure to an uncorrelated asset with independent return. That’s the theory behind PSLDX anyway. 1.2x S&P doesn’t accomplish this.

If we forget about historicals for a second. PSPTX has equivalent amount of leveraged exposure as PSLDX. Only difference is PSLDX is constrained to long bonds while PSPTX is not. Again, if we ignore historicals, which fund has higher expected returns?

Declining rates: PSLDX
Neutral rates: PSLDX
Rising rates: PSPTX

So why isn’t 66/33 PSLDX/PSPTX a good idea? If you are already bought into PSLDX you are already bought into PIMCO’s active bond management. Why wouldn’t you go one step further and trust them to pick the most profitable point on the yield curve?
The problem is that in a rising rate environment, PSPTX is going to move to the short end of the curve and the bonus on top of S&P500 is going to be quite small. In that scenario, why not just stay with 100% stock and avoid the expense that comes with active bond management. The reward so far has not justify the risk.
Do you only invest in a levered bond fund for the additional return from the bonds?
I invest for the likely (but not guaranteed) reduction in tail risk.

I don't know how PSPTX vs PSLDX will behave in an equity crash, but my hunch is long positions on bonds do better.
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

Mortgasm wrote: Wed Oct 20, 2021 7:36 pm Do you only invest in a levered bond fund for the additional return from the bonds?
I invest for the likely (but not guaranteed) reduction in tail risk.

I don't know how PSPTX vs PSLDX will behave in an equity crash, but my hunch is long positions on bonds do better.
During the last 2 big crashes (2008 and 2020), long duration definitely did a bit better. One caveat, both funds hold substantial corp bonds that was under quite a bit of duress during those trying time as well so they just slightly buffered the loss.
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

sigma_frq1 wrote: Tue Oct 19, 2021 8:08 am Is there a manual replication of PSLDX (using combination of ETFs) suitable for taxable account?
We've written about this over and over in this thread. It's too easy, really, if you are going to use something like treasuries. Just pick your 2x funds and you wouldn't have to rebalance all that much.

PSLDX is actually not just treasuries, and so I think PSLDX is more exactly 35% UPRO, 20% TMF, and 45% VCLT (or BLV or ILTB)

You can't really get leveraged corporate bond funds, but since 3X is overkill, it all works out.
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ljford7
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Re: Why not 100% PSLDX?

Post by ljford7 »

sigma_frq1 wrote: Tue Oct 19, 2021 8:08 am Is there a manual replication of PSLDX (using combination of ETFs) suitable for taxable account?
Make sure you do your own PV on the ETF combos that you locate. Some work better then others and I have yet to see one that is spot on (I suspect it is due to the active management of the bond portfolio of PSLDX).
international001
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Re: Why not 100% PSLDX?

Post by international001 »

firebirdparts wrote: Wed Oct 20, 2021 9:46 pm
sigma_frq1 wrote: Tue Oct 19, 2021 8:08 am Is there a manual replication of PSLDX (using combination of ETFs) suitable for taxable account?
We've written about this over and over in this thread. It's too easy, really, if you are going to use something like treasuries. Just pick your 2x funds and you wouldn't have to rebalance all that much.

PSLDX is actually not just treasuries, and so I think PSLDX is more exactly 35% UPRO, 20% TMF, and 45% VCLT (or BLV or ILTB)

You can't really get leveraged corporate bond funds, but since 3X is overkill, it all works out.
What about 35% UPRO and 65% EDV ?
Playing with PV, the PSLDX advantage in the last year goes away if you rebalance often
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

Go for it. I've posted about this probably 10 times already, and I sometimes will mention that if you are trying to add corporate or foreign bonds to something like this (UPRO/TMF, say) to make it "more like PSLDX" then you should ask yourself why you are doing that and have a reason. It's okay to do, but you can see where it's also okay to omit.
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ljford7
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Re: Why not 100% PSLDX?

Post by ljford7 »

international001 wrote: Fri Oct 22, 2021 6:18 pm
firebirdparts wrote: Wed Oct 20, 2021 9:46 pm
sigma_frq1 wrote: Tue Oct 19, 2021 8:08 am Is there a manual replication of PSLDX (using combination of ETFs) suitable for taxable account?
We've written about this over and over in this thread. It's too easy, really, if you are going to use something like treasuries. Just pick your 2x funds and you wouldn't have to rebalance all that much.

PSLDX is actually not just treasuries, and so I think PSLDX is more exactly 35% UPRO, 20% TMF, and 45% VCLT (or BLV or ILTB)

You can't really get leveraged corporate bond funds, but since 3X is overkill, it all works out.
What about 35% UPRO and 65% EDV ?
Playing with PV, the PSLDX advantage in the last year goes away if you rebalance often
Earlier in the thread it was discussed that PLRIX is the "bond" portion of PSLDX. Go and chart that against EDV on PV (they are not even close). This is the problem with trying to approximate PSLDX.

Now I am not saying that UPRO/EDV isn't close enough over the long term, but if you are going to compare in the short term, there are quite a bit of differences that you may or may not be happy with.
TXGator
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Re: Why not 100% PSLDX?

Post by TXGator »

The LT bonds worked great today! Though the flattening yield curve with hot inflation is giving me the willies...
international001
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Re: Why not 100% PSLDX?

Post by international001 »

ljford7 wrote: Wed Oct 27, 2021 11:52 am

Earlier in the thread it was discussed that PLRIX is the "bond" portion of PSLDX. Go and chart that against EDV on PV (they are not even close). This is the problem with trying to approximate PSLDX.

Now I am not saying that UPRO/EDV isn't close enough over the long term, but if you are going to compare in the short term, there are quite a bit of differences that you may or may not be happy with.

Tx, I missed that
It seems to align better with VGLT. Because of similar duration of the bonds. But PSLDX has more corporate and doesn't diversify as well when mixed with stocks.
So I guess PSLDX is great because of convenience, but not the most optimal.

When will we have a VTI+VGLT ETF with x2, x3, x4 leverage options ?
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

international001 wrote: Thu Oct 28, 2021 6:01 pm
ljford7 wrote: Wed Oct 27, 2021 11:52 am

Earlier in the thread it was discussed that PLRIX is the "bond" portion of PSLDX. Go and chart that against EDV on PV (they are not even close). This is the problem with trying to approximate PSLDX.

Now I am not saying that UPRO/EDV isn't close enough over the long term, but if you are going to compare in the short term, there are quite a bit of differences that you may or may not be happy with.

Tx, I missed that
It seems to align better with VGLT. Because of similar duration of the bonds. But PSLDX has more corporate and doesn't diversify as well when mixed with stocks.
So I guess PSLDX is great because of convenience, but not the most optimal.

When will we have a VTI+VGLT ETF with x2, x3, x4 leverage options ?
SEC won't allow x4 and suspended any new x3, but someone will come out a version of x2 or just stick with NTSX in taxable.
texasfight
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Re: Why not 100% PSLDX?

Post by texasfight »

Honestly my advice is the leveraged risk parity decade is over and to be very careful.

If using PSLDX or any leverage on nominal treasuries + stocks, I would add some long dollar exposure.

Still love treasury bonds, but their days as an alpha trade is over (growth down inflation down made them an incredible asset for a decade). Now the trade is growth down inflation up via TIPS or commodities. So they are just a hedge.

Commodities or TIPS have diversified broad stocks better than treasuries.

VTI + VCMDX + EDV is my go to.
RussellWilson
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Re: Why not 100% PSLDX?

Post by RussellWilson »

Would something like this have the same level of risk and be a decent substitute?

33% upro
33% tmf
34% short term TIPs

Or for some factor diversification

25% upro
25% small value
33% tmf
17% short TIPs

One aspect I'm unsure about is whether in the case of the first one 34% should be viewed as a floor in the case of a crisis or whether because the rest is so volatile that I'd be rebalancing quarterly into a falling knife such that it would actually be safer to have a smaller cash (in this case short TIPs) allocation combined with less risky bond allocation.
ljford7
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Re: Why not 100% PSLDX?

Post by ljford7 »

RussellWilson wrote: Sat Oct 30, 2021 8:14 pm Would something like this have the same level of risk and be a decent substitute?

33% upro
33% tmf
34% short term TIPs

Or for some factor diversification

25% upro
25% small value
33% tmf
17% short TIPs

One aspect I'm unsure about is whether in the case of the first one 34% should be viewed as a floor in the case of a crisis or whether because the rest is so volatile that I'd be rebalancing quarterly into a falling knife such that it would actually be safer to have a smaller cash (in this case short TIPs) allocation combined with less risky bond allocation.
There are numerous ways to construct a substitute, but none of them mirror PSLDX as well as I personally like. UPRO and TMF are volatility monsters and are very hard to hold and watch the daily ups/downs. If you go the UPRO/TMF route, then you should really think about rebalancing at least every quarter (the AA can be one-sided quickly). The beauty of a PSLDX, is that you don't have to worry about rebalancing - it is a buy and hold investment, where any iteration/substitute is going to be some work (M1 Finance makes it easier, but there will still be some work).
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cflannagan
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Re: Why not 100% PSLDX?

Post by cflannagan »

texasfight wrote: Thu Oct 28, 2021 6:36 pm Now the trade is growth down inflation up via TIPS or commodities. So they are just a hedge.
What evidence did you see that would support the notion that high inflation is here to stay? As far as I know, Fed would still like to aim to have inflation at 2%-3% per year.
MotoTrojan
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Re: Why not 100% PSLDX?

Post by MotoTrojan »

Raraculus wrote: Fri Feb 12, 2021 1:42 pm

As you can see PSLDX starts out small in the 1st Quarter - 5 cents/share, 1 cent/share, and 3 cents/share. Its payouts get a little bit bigger in the 2nd Quarter. The 3rd Quarter has bigger payouts per share. The 4th Quarter is the winning quarter! :shock:

The 1st 3 quarters are just regular dividends on the bonds held by the portfolio. Futures are always marked-to-market and settled in the 4th quarter, hence why you'll have a distribution equal to the annual gain of the S&P500 (plus a little bit more from the bonds) every year-end, which is debilitating for returns and way more than any sustainable withdrawal rate (hence why it doesn't work to just spend that income in retirement, and claim it is tax efficient).
Last edited by MotoTrojan on Thu Nov 04, 2021 8:21 am, edited 1 time in total.
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Re: Why not 100% PSLDX?

Post by MotoTrojan »

RussellWilson wrote: Sat Oct 30, 2021 8:14 pm Would something like this have the same level of risk and be a decent substitute?

33% upro
33% tmf
34% short term TIPs

Or for some factor diversification

25% upro
25% small value
33% tmf
17% short TIPs

One aspect I'm unsure about is whether in the case of the first one 34% should be viewed as a floor in the case of a crisis or whether because the rest is so volatile that I'd be rebalancing quarterly into a falling knife such that it would actually be safer to have a smaller cash (in this case short TIPs) allocation combined with less risky bond allocation.
EDV is another bond fund worth looking at that is much more efficient than TMF (no volatility decay, much lower expense ratio, but lower duration).

33/67 UPRO/EDV is a decent substitute for PSLDX in my view; pure treasury exposure so lower yield but should be a better equity hedge in a crisis. Volatility decay with only 33% in UPRO is manageable, and the overall expense ratio is reasonable. Tax-efficiency isn't terrible either, especially if you keep most of the UPRO in IRAs (along with EDV to reblance) and then put excess EDV in taxable.

TYA is even less duration but likely more yield due to roll-yield and could be worth a look. Uses futures (so gains will be marked-to-market annually, but 60/40 long/short cap-gains so may be more tax efficient than other bonds) to get 2.5x leverage on 10-year treasuries.
NMBob
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Re: Why not 100% PSLDX?

Post by NMBob »

RussellWilson wrote: Sat Oct 30, 2021 8:14 pm Would something like this have the same level of risk and be a decent substitute?

33% upro
33% tmf
34% short term TIPs

Or for some factor diversification

25% upro
25% small value
33% tmf
17% short TIPs

One aspect I'm unsure about is whether in the case of the first one 34% should be viewed as a floor in the case of a crisis or whether because the rest is so volatile that I'd be rebalancing quarterly into a falling knife such that it would actually be safer to have a smaller cash (in this case short TIPs) allocation combined with less risky bond allocation.
HFEA thread has thousands of posts discussing the likely risks of 3x etfs. I don't see the proposal as equivalent risk to psldx but likely higher due to that. I don't see the reason to take the 3x risk only to get 99 percent stock exposure. why not just buy NTX 90/60 and skip all that? or use 2x etfs. people will post 2x etfs as not as fee efficient but fail to consider if that is an ok trade off for less volatility etc...
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

RussellWilson wrote: Sat Oct 30, 2021 8:14 pm Would something like this have the same level of risk and be a decent substitute?

33% upro
33% tmf
34% short term TIPs

Or for some factor diversification

25% upro
25% small value
33% tmf
17% short TIPs

One aspect I'm unsure about is whether in the case of the first one 34% should be viewed as a floor in the case of a crisis or whether because the rest is so volatile that I'd be rebalancing quarterly into a falling knife such that it would actually be safer to have a smaller cash (in this case short TIPs) allocation combined with less risky bond allocation.
Are you doing this as your overall portfolio or just a bucket of it? As overall portfolio, I think some factor diversification will be a bit better. As a bucket, just go with UPRO/TMF and be done with it. Either one of them, frequent rebalancing is the key due to high volatility of the underlying components. I myself prefer some factor diversification (via small/sector tilt) but you'll have to convince yourself if you believe in factor tilt (some form of market inefficiency).
ljford7
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Re: Why not 100% PSLDX?

Post by ljford7 »

MotoTrojan wrote: Thu Nov 04, 2021 8:17 am The 1st 3 quarters are just regular dividends on the bonds held by the portfolio. Futures are always marked-to-market and settled in the 4th quarter, hence why you'll have a distribution equal to the annual gain of the S&P500 (plus a little bit more from the bonds) every year-end, which is debilitating for returns and way more than any sustainable withdrawal rate (hence why it doesn't work to just spend that income in retirement, and claim it is tax efficient).
I am not following on your comment bolded above regarding why this is a bad thing (if you hold it for the entire year, does it really matter when futures are settled). Could you expand on it?
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Re: Why not 100% PSLDX?

Post by MotoTrojan »

ljford7 wrote: Sun Nov 07, 2021 7:21 am
MotoTrojan wrote: Thu Nov 04, 2021 8:17 am The 1st 3 quarters are just regular dividends on the bonds held by the portfolio. Futures are always marked-to-market and settled in the 4th quarter, hence why you'll have a distribution equal to the annual gain of the S&P500 (plus a little bit more from the bonds) every year-end, which is debilitating for returns and way more than any sustainable withdrawal rate (hence why it doesn't work to just spend that income in retirement, and claim it is tax efficient).
I am not following on your comment bolded above regarding why this is a bad thing (if you hold it for the entire year, does it really matter when futures are settled). Could you expand on it?
The point is that you have to pay taxes on all of the gains, where-as typically with equities you'll only pay taxes on dividends (and all of that is qualified so lower rate) and then can decide how much to sell in addition to meet your withdrawal rate.

PSLDX's expected return on the equity side is greater than any reasonable safe-withdrawal rate so it is forcing a distribution larger than you'd need, thus forcing you to pay excess taxes (and again, 60/40 long/short cap-gain so a higher rate).

Imagine 8% expected equity return and 4% withdrawal rate. In VOO you'll get 2% from dividends, and then sell 2% more, and pay long-term on the 4% withdrawal rate. Let's assume 25% tax, now you are left with 3% after-tax to spend. With PSLDX you'll distribute the full 8% gain, pay 60/40 long/short tax on that, then have to reinvest 4%. Even if we assume long/short tax are both 25%, that leaves you with only 2% after-tax to spend. So you need PSLDX to outperform by 50% in order to just match the after-tax return of VOO, and that is giving PSLDX the advantage as I ignored that 40% of the taxes would be income not long-term gain.

In summary, there is never a scenario where it is tax-efficient to use PSLDX in taxable, even if you spend 100% of the distribution (because of 60/40 split). This is why most brokers won't even let you buy it in taxable.
adamhg
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Re: Why not 100% PSLDX?

Post by adamhg »

JohnnyFive wrote: Mon Apr 06, 2020 8:51 pm Can PSLDX be purchased in any state's 529 plan that anyone knows of?
It's been a year since this was originally asked. Had anybody found any possibilities? And if not what's a good alternative?
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cflannagan
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Re: Why not 100% PSLDX?

Post by cflannagan »

adamhg wrote: Sun Nov 07, 2021 9:58 am
JohnnyFive wrote: Mon Apr 06, 2020 8:51 pm Can PSLDX be purchased in any state's 529 plan that anyone knows of?
It's been a year since this was originally asked. Had anybody found any possibilities? And if not what's a good alternative?
I've not seen any 529's that gives us option to invest into individual stocks or funds - rather the choice, as far as I've seen, tends to be "conservative, moderate, or aggressive". Which corresponds to host's respective implementation of time-based (like target retirement funds) blended portfolio (conservative, moderate, aggressive). I could be mistaken here though - someone please correct me here.

With Coverdell ESAs, I believe, you have more choices (like doing HFEA or investing into individual stocks or funds)
adamhg
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Re: Why not 100% PSLDX?

Post by adamhg »

cflannagan wrote: Sun Nov 07, 2021 10:12 am
adamhg wrote: Sun Nov 07, 2021 9:58 am
JohnnyFive wrote: Mon Apr 06, 2020 8:51 pm Can PSLDX be purchased in any state's 529 plan that anyone knows of?
It's been a year since this was originally asked. Had anybody found any possibilities? And if not what's a good alternative?
I've not seen any 529's that gives us option to invest into individual stocks or funds - rather the choice, as far as I've seen, tends to be "conservative, moderate, or aggressive". Which corresponds to host's respective implementation of time-based (like target retirement funds) blended portfolio (conservative, moderate, aggressive). I could be mistaken here though - someone please correct me here.

With Coverdell ESAs, I believe, you have more choices (like doing HFEA or investing into individual stocks or funds)
I'm not very familiar with 529 admittedly, but it looks like South Dakota has the option where you can individually direct to PSPTX, the total return alternative to PSLDX. It seems like it might be open to non residents through an advisor, but I'm assuming that might mean more fees.

I'm considering this as an alternative if I can't find one that supports PSLDX, but there's a good chance I have no idea what I'm talking about here

https://www.savingforcollege.com/529-pl ... nt-options
ljford7
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Re: Why not 100% PSLDX?

Post by ljford7 »

MotoTrojan wrote: Sun Nov 07, 2021 9:23 am The point is that you have to pay taxes on all of the gains, where-as typically with equities you'll only pay taxes on dividends (and all of that is qualified so lower rate) and then can decide how much to sell in addition to meet your withdrawal rate.

PSLDX's expected return on the equity side is greater than any reasonable safe-withdrawal rate so it is forcing a distribution larger than you'd need, thus forcing you to pay excess taxes (and again, 60/40 long/short cap-gain so a higher rate).

Imagine 8% expected equity return and 4% withdrawal rate. In VOO you'll get 2% from dividends, and then sell 2% more, and pay long-term on the 4% withdrawal rate. Let's assume 25% tax, now you are left with 3% after-tax to spend. With PSLDX you'll distribute the full 8% gain, pay 60/40 long/short tax on that, then have to reinvest 4%. Even if we assume long/short tax are both 25%, that leaves you with only 2% after-tax to spend. So you need PSLDX to outperform by 50% in order to just match the after-tax return of VOO, and that is giving PSLDX the advantage as I ignored that 40% of the taxes would be income not long-term gain.

In summary, there is never a scenario where it is tax-efficient to use PSLDX in taxable, even if you spend 100% of the distribution (because of 60/40 split). This is why most brokers won't even let you buy it in taxable.
Thank you for clarifying (BTW I hold a considerable amount of it in IRA's - was curious if there was a risk I was missing).
MotoTrojan
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Re: Why not 100% PSLDX?

Post by MotoTrojan »

ljford7 wrote: Sun Nov 07, 2021 12:47 pm

Thank you for clarifying (BTW I hold a considerable amount of it in IRA's - was curious if there was a risk I was missing).
Nope holding it in IRAs is the move, and has worked out very favorably for you compared to just holding the S&P500, well done!
RussellWilson
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Re: Why not 100% PSLDX?

Post by RussellWilson »

MotoTrojan wrote: Thu Nov 04, 2021 8:20 am
RussellWilson wrote: Sat Oct 30, 2021 8:14 pm Would something like this have the same level of risk and be a decent substitute?

33% upro
33% tmf
34% short term TIPs

Or for some factor diversification

25% upro
25% small value
33% tmf
17% short TIPs

One aspect I'm unsure about is whether in the case of the first one 34% should be viewed as a floor in the case of a crisis or whether because the rest is so volatile that I'd be rebalancing quarterly into a falling knife such that it would actually be safer to have a smaller cash (in this case short TIPs) allocation combined with less risky bond allocation.
EDV is another bond fund worth looking at that is much more efficient than TMF (no volatility decay, much lower expense ratio, but lower duration).

33/67 UPRO/EDV is a decent substitute for PSLDX in my view; pure treasury exposure so lower yield but should be a better equity hedge in a crisis. Volatility decay with only 33% in UPRO is manageable, and the overall expense ratio is reasonable. Tax-efficiency isn't terrible either, especially if you keep most of the UPRO in IRAs (along with EDV to reblance) and then put excess EDV in taxable.

TYA is even less duration but likely more yield due to roll-yield and could be worth a look. Uses futures (so gains will be marked-to-market annually, but 60/40 long/short cap-gains so may be more tax efficient than other bonds) to get 2.5x leverage on 10-year treasuries.
I like the logic behind 33 UPRO/67 EDV. I think I want to diversify with SCV, in part because I'm a bit of a believer and in part because SCV *might* perform better in the kind of inflationary scenario that would be bad for the overall portfolio. This seems to achieve 100/99 with 13 bp more in fees than 67 EDV / 33 UPRO:

25% small cap value (13% AVUV/ 12% AVDV)
25% UPRO
34% EDV
16% TMF

The volatility drag cost of 41% vs 33% leveraged ETFs I'm not sure how to factor. I wonder if any of that is negated at all by a greater rebalancing bonus...SCV's volatility might contribute to this as well.
RosieQ
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Re: Why not 100% PSLDX?

Post by RosieQ »

So many replies trying to slice and dice and rebuild PSLDX. Just doesn't seem worth it to me as it adds rebalancing requirements and more behavioral opportunities to fudge things and trend follow into underperformance. With the drop in the fee down to 0.6% that seems very fair for the leverage provided.

This was an interesting article I read last week. Seeking Alpha doesn't always provide the most reliable content but I thought that the "return stacking" summary of how this fund works was fairly accurate, plus a bit of rebalancing bonus thrown in.

https://seekingalpha.com/article/446462 ... rt-1-psldx
Booogle
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Re: Why not 100% PSLDX?

Post by Booogle »

RosieQ wrote: Tue Nov 09, 2021 3:58 pm With the drop in the fee down to 0.6% that seems very fair for the leverage provided.

A. A lot of people don't have access to it

B. Some people don't have IRAs, so they are looking for alternatives that work in taxable accounts.
texasfight
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Re: Why not 100% PSLDX?

Post by texasfight »

cflannagan wrote: Thu Nov 04, 2021 8:11 am
texasfight wrote: Thu Oct 28, 2021 6:36 pm Now the trade is growth down inflation up via TIPS or commodities. So they are just a hedge.
What evidence did you see that would support the notion that high inflation is here to stay? As far as I know, Fed would still like to aim to have inflation at 2%-3% per year.
I can't say the words on this forum, but it rhymes with cometization.

And now the only way for us to prop up our asset based economy is with direct stimulus. We have moved on to effectively printing earnings for companies because our economy can not even employ workers and pay them enough to buy it themselves. Government has filled the gap.

Laugh at me all you want I was telling people to GTHO of bonds back in April/May of 2020. We are in a new paradigm, and bonds have done nothing to hedge equity drawdowns, better off with long $DXY.
texasfight
Posts: 367
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Re: Why not 100% PSLDX?

Post by texasfight »

Today is why not 100% PSLDX

bonds don't hedge equity drawdowns when it is a managed market, just a question of how insane the Fed let's inflation and asset prices get before causing a liquidity crash. Rinse and repeat.
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