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

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manlymatt83
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Re: Why not 100% PSLDX?

Post by manlymatt83 »

A few months back I switched to a somewhat set and forget 3 fund portfolio but decided to allocate my old traditional IRA to “play” funds. I won’t be contributing to this any further.

This basically means that my PSLDX allocation is and will stay at $10k. I’ll reinvest dividends and see what happens.

But given the limited dollar amount, I’m almost wondering if HFEA might be a better fit for that $10k. $10k isn’t going to make or break my future and I enjoy having something to follow along with.

Curious if folks have any thoughts on this. If you were capped at 10k, would you reconsider your PSLDX in favor of HFEA?
DMoogle
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Re: Why not 100% PSLDX?

Post by DMoogle »

manlymatt83 wrote: Thu Feb 18, 2021 8:01 pm A few months back I switched to a somewhat set and forget 3 fund portfolio but decided to allocate my old traditional IRA to “play” funds. I won’t be contributing to this any further.

This basically means that my PSLDX allocation is and will stay at $10k. I’ll reinvest dividends and see what happens.

But given the limited dollar amount, I’m almost wondering if HFEA might be a better fit for that $10k. $10k isn’t going to make or break my future and I enjoy having something to follow along with.

Curious if folks have any thoughts on this. If you were capped at 10k, would you reconsider your PSLDX in favor of HFEA?
I view the core concept behind NTSX, PSLDX, and HFEA as very similar, with the biggest difference being the leverage ratio. HFEA > PSLDX > NTSX in terms of risk and reward aggressiveness.

If you have no qualms about losing the $10k, HFEA is the way to go, as it has the highest expected risk and highest reward.
manlymatt83
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Re: Why not 100% PSLDX?

Post by manlymatt83 »

DMoogle wrote: Thu Feb 18, 2021 9:22 pm
manlymatt83 wrote: Thu Feb 18, 2021 8:01 pm A few months back I switched to a somewhat set and forget 3 fund portfolio but decided to allocate my old traditional IRA to “play” funds. I won’t be contributing to this any further.

This basically means that my PSLDX allocation is and will stay at $10k. I’ll reinvest dividends and see what happens.

But given the limited dollar amount, I’m almost wondering if HFEA might be a better fit for that $10k. $10k isn’t going to make or break my future and I enjoy having something to follow along with.

Curious if folks have any thoughts on this. If you were capped at 10k, would you reconsider your PSLDX in favor of HFEA?
I view the core concept behind NTSX, PSLDX, and HFEA as very similar, with the biggest difference being the leverage ratio. HFEA > PSLDX > NTSX in terms of risk and reward aggressiveness.

If you have no qualms about losing the $10k, HFEA is the way to go, as it has the highest expected risk and highest reward.
Thanks! Does 50/50 UPRO/TMF resemble more of the mmas up of PSLDX with just a 3x leverage?
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cos
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Re: Why not 100% PSLDX?

Post by cos »

manlymatt83 wrote: Thu Feb 18, 2021 9:43 pm Thanks! Does 50/50 UPRO/TMF resemble more of the mmas up of PSLDX with just a 3x leverage?
Eh, looks like PSLDX is best tracked by 122/67 S&P500/LTT using daily leveraged ETFs. Check out this backtest.

That translates to 65/35 UPRO/TMF if you're chasing the "3x version" of PSLDX. Don't forget to rebalance.
finvest
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Re: Why not 100% PSLDX?

Post by finvest »

I've only started following this recently, but for all the talk about situations where PSLDX might underperform the S&P, it's pretty strongly underperformed looking back YTD.

Image

4.7% off the benchmark is worse than I would have expected over such a short time period. There were no dividend distributions this year so far.
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

finvest wrote: Fri Feb 19, 2021 10:37 am I've only started following this recently, but for all the talk about situations where PSLDX might underperform the S&P, it's pretty strongly underperformed looking back YTD.

4.7% off the benchmark is worse than I would have expected over such a short time period. There were no dividend distributions this year so far.
But looking back 1yr, it's 3% better than SP500. Of course, with bond yield shooting up this year, one expect this to underperform in short/medium term. The question is do you expect rate to continue to go up, in which PSLDX will continue to underperform, or do you expect rate to flatten, in which PSLDX will have a chance to beat SP500 (depending on the steepness of the yield curve of course).

Image
Tingting1013
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Re: Why not 100% PSLDX?

Post by Tingting1013 »

finvest wrote: Fri Feb 19, 2021 10:37 am I've only started following this recently, but for all the talk about situations where PSLDX might underperform the S&P, it's pretty strongly underperformed looking back YTD.

Image

4.7% off the benchmark is worse than I would have expected over such a short time period. There were no dividend distributions this year so far.
And if the S&P crashes, PSLDX will almost certainly outperform again
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

Today sure didn’t help it.
This time is the same
manlymatt83
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Re: Why not 100% PSLDX?

Post by manlymatt83 »

firebirdparts wrote: Fri Feb 19, 2021 4:40 pm Today sure didn’t help it.
Why?
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

Here's a cheat sheet to what you'll feel if you both hold PSLDX and want to check the NAV every day:

1. Days where the S&P500 is up but bonds are down: Aww :(
2. Days where both the S&P500 and bonds are down: Arg :annoyed
3. Days where the S&P500 is down but bonds are up: Phew :)
4. Days where both the S&P500 and bonds are up: Yoo :moneybag

Even considering the uncertainty around interest rates etc, I expect that over my time horizon of a couple decades there will be enough more days like 3/4 than like 1/2, that this fund will still outperform. But as with any other fund, we shall see.
occambogle
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Re: Why not 100% PSLDX?

Post by occambogle »

DMoogle wrote: Thu Feb 18, 2021 9:22 pm I view the core concept behind NTSX, PSLDX, and HFEA as very similar, with the biggest difference being the leverage ratio. HFEA > PSLDX > NTSX in terms of risk and reward aggressiveness.
Another big difference is viability in a taxable account. Not saying you should let the tax tail wag the dog.. but... some are more suitable than others e.g. NTSX is very tax efficient, PSLDX in taxable is arguably a big no-no, HFEA has been done in taxable and there's some posts indicating it's not too bad, but seems a bit complicated to me to get right in taxable.
cat_guy
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Re: Why not 100% PSLDX?

Post by cat_guy »

🤩

Image

🤨

Image

Some interesting contrasting years in there. But the multi-year rolling returns all look good. Anyone know if there are similar funds that go farther back that might be interesting to discuss?

https://www.portfoliovisualizer.com/bac ... ion2_2=100
ljford7
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Re: Why not 100% PSLDX?

Post by ljford7 »

The front page of the thread has some funds that you can use to get a longer timeframe in PV. The below combo works well and gets you back to 1985.

100% VWESX
100% VFINX
-100% CashX
cat_guy
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Re: Why not 100% PSLDX?

Post by cat_guy »

ljford7 wrote: Wed Feb 24, 2021 9:13 pm The front page of the thread has some funds that you can use to get a longer timeframe in PV. The below combo works well and gets you back to 1985.
100% VWESX 100% VFINX -100% CashX
Okay, all the back to 1993 now. For everything except 1-year, pretty mild decrease in low and significant increase in average and high.

Image

https://www.portfoliovisualizer.com/bac ... on4_1=-100
ljford7
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Re: Why not 100% PSLDX?

Post by ljford7 »

The returns do look good, but the one issue is there is a time, like now, where it is underperforming the S&P by quite a lot. You are going to have entire years where this happens and that is tough to stomach (FOMO). If you are going to buy it, plan on holding it for years to see gains.
DMoogle
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Re: Why not 100% PSLDX?

Post by DMoogle »

Y'all who have difficulty seeing times when leveraged portfolios like these underperform the S&P should never play poker.
e5116
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Re: Why not 100% PSLDX?

Post by e5116 »

Given the bond part of PSLDX is actively managed, can one compare/contrast it to something like TMF? Wish could separate out the performance on the equities/bond side in PSLDX. I'm considering PSLDX in my Roth long-term, but don't have full-faith in long-term treasuries right now. Wondering if the actively managed bond portion of PSLDX might give it an advantage over the HFEA as an example. I believe it's more diversified with some corporate bond holdings too.
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

e5116 wrote: Thu Feb 25, 2021 11:38 am Given the bond part of PSLDX is actively managed, can one compare/contrast it to something like TMF? Wish could separate out the performance on the equities/bond side in PSLDX. I'm considering PSLDX in my Roth long-term, but don't have full-faith in long-term treasuries right now. Wondering if the actively managed bond portion of PSLDX might give it an advantage over the HFEA as an example. I believe it's more diversified with some corporate bond holdings too.
Quick look at the holding report shows that ~53% of bond in PSLDX is corporate and 43% LTT and the rest of bond holding are muni and etc. It will be interesting to see how PIMCO managers will move with LTT rate going up significantly (last holding report is from 9/30/20).

https://www.pimco.com/handlers/displayd ... zdIgn%2bRE
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

This long thread has several ways to mimic it, and the HFEA thread too, but of course none are exact.

So personally my favorite is 35% UPRO, 20% TMF, and 45% VCLT or BLV. Here's a good summary of how that does:
viewtopic.php?f=10&t=272007&start=2750
This time is the same
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Raraculus
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Re: Why not 100% PSLDX?

Post by Raraculus »

PSLDX got hammered today (almost 4% loss). Given the carnage that blew up HFEA today, I'll accept this loss, and wish I had some money to DCA into this fund. :)
averagedude
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Re: Why not 100% PSLDX?

Post by averagedude »

Could this be another thread on Boglehead's that has run it's course like Willthrill's market timing strategy? A fantastic theory that is proven to be a success in backtesting, but turns out to be a failure.
Tingting1013
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Re: Why not 100% PSLDX?

Post by Tingting1013 »

averagedude wrote: Thu Feb 25, 2021 8:46 pm Could this be another thread on Boglehead's that has run it's course like Willthrill's market timing strategy? A fantastic theory that is proven to be a success in backtesting, but turns out to be a failure.
Where is the failure exactly?
averagedude
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Re: Why not 100% PSLDX?

Post by averagedude »

Tingting1013 wrote: Thu Feb 25, 2021 9:23 pm
averagedude wrote: Thu Feb 25, 2021 8:46 pm Could this be another thread on Boglehead's that has run it's course like Willthrill's market timing strategy? A fantastic theory that is proven to be a success in backtesting, but turns out to be a failure.
Where is the failure exactly?
Absolutely no failure, but could it result in a failure in the future?
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

averagedude wrote: Fri Feb 26, 2021 5:00 am
Tingting1013 wrote: Thu Feb 25, 2021 9:23 pm
averagedude wrote: Thu Feb 25, 2021 8:46 pm Could this be another thread on Boglehead's that has run it's course like Willthrill's market timing strategy? A fantastic theory that is proven to be a success in backtesting, but turns out to be a failure.
Where is the failure exactly?
Absolutely no failure, but could it result in a failure in the future?
Yes, significant increase in rate will degrade the bond portion of the performance for this fund. It's known ahead of time, without the need to do any backtesting. The same is happening to bond fund in the BH 3 fund portfolio. Of course due to leverage, PSLDX sees a bit more severe impact but it's not unknown/unheard of. Not sure where is the failure that was pointed to in the OP?
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codoriti
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Re: Why not 100% PSLDX?

Post by codoriti »

No pain, no gain :sharebeer
e5116
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Re: Why not 100% PSLDX?

Post by e5116 »

Morningstar Percentile Rank for PSLDX for its Category (Allocation--85%+ Equity):

2019: 1 (i.e. best performing)
2020: 4
2021 YTD: 100 (i.e. worst performing)

Feast or famine.....

Going back:
2011: 1
2012: 1
2013: 99
2014: 1
2015: 81
2016: 1
2017: 7
2018: 64 (this is basically the ONLY year somewhere "in the middle")

Of course, comparing it to the 85% equity category is not even close to "apples to apples" but still find the percentiles interesting.
https://www.morningstar.com/funds/xnas/ ... erformance
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

e5116 wrote: Fri Mar 05, 2021 8:55 am Morningstar Percentile Rank for PSLDX for its Category (Allocation--85%+ Equity):

2019: 1 (i.e. best performing)
2020: 4
2021 YTD: 100 (i.e. worst performing)

Feast or famine.....

Going back:
2011: 1
2012: 1
2013: 99
2014: 1
2015: 81
2016: 1
2017: 7
2018: 64 (this is basically the ONLY year somewhere "in the middle")

Of course, comparing it to the 85% equity category is not even close to "apples to apples" but still find the percentiles interesting.
https://www.morningstar.com/funds/xnas/ ... erformance
Yup, whenever bond is performing well, this fund will be great but truly lags if there' significant headwind for bond.
matthew53
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Re: Why not 100% PSLDX?

Post by matthew53 »

With stocks rallying today and bonds relatively flat, I'd have expected to see PSLDX up today. To my astonishment, it was down over 5%. Does anyone have any insight into WHY this occurred?
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

In case someone ask, the 5% drop today is due to dividend. $0.525 per share. :beer

P.S. That's why don't hold this in taxable account.
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

Where did you see the amount? I couldn’t find it.
This time is the same
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

firebirdparts wrote: Thu Mar 11, 2021 7:22 pm Where did you see the amount? I couldn’t find it.
Dividend investor of all place.
https://www.dividendinvestor.com/divide ... ail/psldx/
iskey
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Re: Why not 100% PSLDX?

Post by iskey »

jarjarM wrote: Thu Mar 11, 2021 7:18 pm In case someone ask, the 5% drop today is due to dividend. $0.525 per share. :beer

P.S. That's why don't hold this in taxable account.
Why such a large dividend this time, anyone know? More than double the average dividend for this fund.
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Raraculus
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Re: Why not 100% PSLDX?

Post by Raraculus »

jarjarM wrote: Thu Mar 11, 2021 7:18 pmIn case someone ask, the 5% drop today is due to dividend. $0.525 per share. :beer

P.S. That's why don't hold this in taxable account.
Just wow. Why so big a dividend this early in the 1st Quarter of 2021? PSLDX definitely bucking its recent historical record with this huge dividend payout.

Maybe PSLDX will release an absolute unit of a payout in December 2021, from which all other payouts will be measured against. :shock:
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

iskey wrote: Thu Mar 11, 2021 7:57 pm
jarjarM wrote: Thu Mar 11, 2021 7:18 pm In case someone ask, the 5% drop today is due to dividend. $0.525 per share. :beer

P.S. That's why don't hold this in taxable account.
Why such a large dividend this time, anyone know? More than double the average dividend for this fund.
Usually they won't issue such large dividend in March, but since the bond portion is actively managed, it's hard to know exactly what Pimco did. The distribution itself is not yet reported on PIMCO but maybe it's a combination of dividend and capital gain distribution?
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

jarjarM wrote: Thu Mar 11, 2021 7:27 pm
firebirdparts wrote: Thu Mar 11, 2021 7:22 pm Where did you see the amount? I couldn’t find it.
Dividend investor of all place.
https://www.dividendinvestor.com/divide ... ail/psldx/
Thanks!
This time is the same
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

iskey wrote: Thu Mar 11, 2021 7:57 pm
jarjarM wrote: Thu Mar 11, 2021 7:18 pm In case someone ask, the 5% drop today is due to dividend. $0.525 per share. :beer

P.S. That's why don't hold this in taxable account.
Why such a large dividend this time, anyone know? More than double the average dividend for this fund.
The bonds are real, the stock returns are simulated. They have to settle in cash whenever they settle. All those contracts have some end date.

Last summer it was interesting seeing all those contracts shown as holdings on the prospectus and the value was negative. It all seems to mess with their leverage a bit.
This time is the same
SSuke
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Re: Why not 100% PSLDX?

Post by SSuke »

I am so confused with this fund. Why is that when I look at this fund through charts on Google & Yahoo Finance, the performance looks horrible? On those charts, it looks like the fund went nowhere in the past 14 years.

Yet when I look at the chart here: https://www.morningstar.com/funds/xnas/ ... erformance, it correctly shows the performance.
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

SSuke wrote: Thu Mar 11, 2021 9:37 pm I am so confused with this fund. Why is that when I look at this fund through charts on Google & Yahoo Finance, the performance looks horrible? On those charts, it looks like the fund went nowhere in the past 14 years.

Yet when I look at the chart here: https://www.morningstar.com/funds/xnas/ ... erformance, it correctly shows the performance.
See up thread but basically it’s because google and yahoo is showing price index only (no dividend reinvestment) but Morningstar is showing total return (dividend reinvested)
e5116
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Re: Why not 100% PSLDX?

Post by e5116 »

SSuke wrote: Thu Mar 11, 2021 9:37 pm I am so confused with this fund. Why is that when I look at this fund through charts on Google & Yahoo Finance, the performance looks horrible? On those charts, it looks like the fund went nowhere in the past 14 years.

Yet when I look at the chart here: https://www.morningstar.com/funds/xnas/ ... erformance, it correctly shows the performance.
Jarjar already answered, but thought I'd add that this fund has very large distributions compared to most funds. So you absolutely HAVE to look at total return and not just price. It's the same as if you have a high dividend paying stock. You need to consider not only the price but also the payouts from the stock and what the investment would be worth if you reinvested those payouts. That's the only way to get an apples to apples comparison to a stock or fund that has zero distributions. Morningstar growth chart or looking at total return from funds prospectus is the way, google or Yahoo finance price chart leaves that out, although may show small icons indicating dividend amounts.
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

Ya, this fund seems to bounce around the same $8-9 per share. The dividends and capital gains in Dec are where the magic happens. Hence why it's a horrible fund to have in a taxable account.

I was also wondering why such a huge March distribution. According to Schwab's chart here: https://client.schwab.com/secure/cc/res ... mbol=PSLDX , this is the 3rd highest distribution in nearly 5 years. But I guess we'll just have to chalk it up to the bond-side voodoo this fund do dos.
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

rchmx1 wrote: Thu Mar 11, 2021 10:08 pm Ya, this fund seems to bounce around the same $8-9 per share. The dividends and capital gains in Dec are where the magic happens. Hence why it's a horrible fund to have in a taxable account.

I was also wondering why such a huge March distribution. According to Schwab's chart here: https://client.schwab.com/secure/cc/res ... mbol=PSLDX , this is the 3rd highest distribution in nearly 5 years. But I guess we'll just have to chalk it up to the bond-side voodoo this fund do dos.
Yeah, that’s the $64k question. Hopefully pimco will explain it.
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

jarjarM wrote: Thu Mar 11, 2021 10:57 pm
rchmx1 wrote: Thu Mar 11, 2021 10:08 pm Ya, this fund seems to bounce around the same $8-9 per share. The dividends and capital gains in Dec are where the magic happens. Hence why it's a horrible fund to have in a taxable account.

I was also wondering why such a huge March distribution. According to Schwab's chart here: https://client.schwab.com/secure/cc/res ... mbol=PSLDX , this is the 3rd highest distribution in nearly 5 years. But I guess we'll just have to chalk it up to the bond-side voodoo this fund do dos.
Yeah, that’s the $64k question. Hopefully pimco will explain it.
I'd be very curious if PIMCO ends up providing some insight, but I also just need to read a book on bonds (maybe Bogle's book), because I don't understand them at all. It would be really interesting to have some kind of insight into possible explanations, and what if anything this could mean for the rest of the dividend payouts this year. The March payouts the past three years were .01, .01, and .03, so to have a .52 payout this year seems like quite an anomaly. Not complaining or expressing concern of course, it's just a curious deviation.
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

rchmx1 wrote: Thu Mar 11, 2021 11:20 pm
jarjarM wrote: Thu Mar 11, 2021 10:57 pm
rchmx1 wrote: Thu Mar 11, 2021 10:08 pm Ya, this fund seems to bounce around the same $8-9 per share. The dividends and capital gains in Dec are where the magic happens. Hence why it's a horrible fund to have in a taxable account.

I was also wondering why such a huge March distribution. According to Schwab's chart here: https://client.schwab.com/secure/cc/res ... mbol=PSLDX , this is the 3rd highest distribution in nearly 5 years. But I guess we'll just have to chalk it up to the bond-side voodoo this fund do dos.
Yeah, that’s the $64k question. Hopefully pimco will explain it.
I'd be very curious if PIMCO ends up providing some insight, but I also just need to read a book on bonds (maybe Bogle's book), because I don't understand them at all. It would be really interesting to have some kind of insight into possible explanations, and what if anything this could mean for the rest of the dividend payouts this year. The March payouts the past three years were .01, .01, and .03, so to have a .52 payout this year seems like quite an anomaly. Not complaining or expressing concern of course, it's just a curious deviation.
Looks like it's just a normal distribution. I was hoping to compare the holding between last Q and Q1 but Pimco hasn't update the data yet so we'll just have to wait and see.
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UpsetRaptor
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Re: Why not 100% PSLDX?

Post by UpsetRaptor »

Man, the long bonds have not been kind to PSLDX this year so far. I knew it was underperforming, but just checked in on Q1 in PV, and was a little surprised to see it underperforming the S&P500 by 10% YTD. Then checked BLV, turns out that's down 10% YTD, so that explains why.
garlandwhizzer
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Re: Why not 100% PSLDX?

Post by garlandwhizzer »

First, there is no strategy for investing outperformance that does not have capacity restraints. If sufficient investor money, swayed by excellent backtesting results flows into PSLDX, its alpha will be diluted and revert toward zero. No strategy is immune from asset bloat.

Second, PSLDX has been driven by market dynamics (dominance of mega cap growth heavily represented in S&P 500) and by the perfect bond market environment for quality LTT (more than a decade of FED generated record low interest rates in combination with sluggish economic growth). We are IMO at the end of that longest and greatest bond bull market in US history when LTB maximally outperformed shorter durations, taking full advantage. We may also be at the end of massive US mega-cap tech outperformance.

PSLDX has been driven by more than a decade of powerful macroeconomic tailwinds and market preference tailwinds that have driven its impressive risk adjusted outperformance. Will those same trends continue into the future? In the bond market, my guess is no. I believe bonds carry a great deal more risk now than potential return and that this reversal relative to past risk/reward bond tradeoff will be maximized in LTB which in my view have very limited upside and considerable downside risk going forward as has been apparent in the last 9 months. As for equities, the mega-cap tech has dominated S&P 500's robust returns for more than a decade. Small cap value and INTL have been left in the dust. If this trend is at an inflection point, playing the derivates game with S&P 500 is going to be much more challenging going forward.

I personally think that PSLDX has an appealing strategy, going long with leverage on very solid assets like S&P 500 and quality LTB. But going forward the risk/reward environment for its approach is much less favorable than its past. It also requires skill in execution of its active bond management and its skill in S&P 500 equity derivatives. The professionals on the other side of PSLDX's bets are not idiots and they may have their day in the sun going forward.

In sum, it's fine with me if you fall in love with backtesting results and want to go 100% PSLDX. I wish you luck as I do all investors. Personally I don't expect its future to be as happy as its past. A long period of outperformance in actively managed funds like PSLDX is more often than not is a prelude for future trouble. Persistent and continued clear sailing to risk adjusted outperformance is strikingly absent in active management winners whatever approach they choose. It would all be so easy if you could just go backward in time when backtesting is 100% predictive.

Garland Whizzer
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imak
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Re: Why not 100% PSLDX?

Post by imak »

garlandwhizzer wrote: Sun Apr 11, 2021 1:53 pm Second, PSLDX has been driven by market dynamics (dominance of mega cap growth heavily represented in S&P 500) and by the perfect bond market environment for quality LTT (more than a decade of FED generated record low interest rates in combination with sluggish economic growth). We are IMO at the end of that longest and greatest bond bull market in US history when LTB maximally outperformed shorter durations, taking full advantage. We may also be at the end of massive US mega-cap tech outperformance.

Garland Whizzer
Very well said, indeed long term bonds suffer heavy losses during periods immediately after recession when long term yield curve expands (i.e. shorter duration yields relatively constant and longer duration yields go up drastically). This yield curve expansion period also predicts rising inflation (although not perfectly) in short term which favors value/small-value stocks with high tangible assets.

A similar scenario happened in 2013 when long term treasury yields rose in 2013 (taper tantrum?). In 2013, PSLDX returned 18% versus S&P 500 return of 32%.

Moreover, on the bond side of portfolio, corporate bonds, even if high quality, do carry credit risk which is correlated with equity risk, which dilutes the overall benefit of negative correlation provided by treasuries.

In my humble opinion, NTSX ETF is more likely to be a robust strategy going forward (compared to PSLDX) as it does not invest in corporate bonds as well as averages the effect over the yield curve by investing in short, intermediate and long term treasuries in equal amounts.
RussellWilson
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Re: Why not 100% PSLDX?

Post by RussellWilson »

Thinking of attempting a DYI with 33% UPRO and 67% EDV. I'm wondering, is increasing duration taking the same kind of risk as leverage? The duration for PSLDX is ~16, so if EDV was ~24, is that the same kind of interest rate risk and expected performance as levering a 16 duration treasury bond by 1.5x? I know PSLDX isn't all treasuries so the risk profile is different in that regard...

I know that UPRO behaves differently than 3x margin SP 500. But say I'm aiming for 100% SP 500 and 100% LTT, is the above a decent approximation? Considering the combined ER of EDV/UPRO is .36, vs 1.02 for PSLDX, it seems like a DYI version is optimal, unless maybe UPRO's issues stemming from daily leverage are worth paying a significant amount to avoid?
ljford7
Posts: 103
Joined: Tue Jul 06, 2010 8:15 pm

Re: Why not 100% PSLDX?

Post by ljford7 »

imak wrote: Sun Apr 11, 2021 2:35 pm Very well said, indeed long term bonds suffer heavy losses during periods immediately after recession when long term yield curve expands (i.e. shorter duration yields relatively constant and longer duration yields go up drastically). This yield curve expansion period also predicts rising inflation (although not perfectly) in short term which favors value/small-value stocks with high tangible assets.

A similar scenario happened in 2013 when long term treasury yields rose in 2013 (taper tantrum?). In 2013, PSLDX returned 18% versus S&P 500 return of 32%.

Moreover, on the bond side of portfolio, corporate bonds, even if high quality, do carry credit risk which is correlated with equity risk, which dilutes the overall benefit of negative correlation provided by treasuries.

In my humble opinion, NTSX ETF is more likely to be a robust strategy going forward (compared to PSLDX) as it does not invest in corporate bonds as well as averages the effect over the yield curve by investing in short, intermediate and long term treasuries in equal amounts.
Go and look what it did in 2014 though.

Looking at the annual returns, it seems to have a "bad" year and then a couple of good years that offset it. Right now it is working on being a bad year, but there is still a lot of the year left.
ljford7
Posts: 103
Joined: Tue Jul 06, 2010 8:15 pm

Re: Why not 100% PSLDX?

Post by ljford7 »

RussellWilson wrote: Sun Apr 11, 2021 10:59 pm Thinking of attempting a DYI with 33% UPRO and 67% EDV. I'm wondering, is increasing duration taking the same kind of risk as leverage? The duration for PSLDX is ~16, so if EDV was ~24, is that the same kind of interest rate risk and expected performance as levering a 16 duration treasury bond by 1.5x? I know PSLDX isn't all treasuries so the risk profile is different in that regard...

I know that UPRO behaves differently than 3x margin SP 500. But say I'm aiming for 100% SP 500 and 100% LTT, is the above a decent approximation? Considering the combined ER of EDV/UPRO is .36, vs 1.02 for PSLDX, it seems like a DYI version is optimal, unless maybe UPRO's issues stemming from daily leverage are worth paying a significant amount to avoid?
My main question is why? PSLDX provides a similar package, but is a lot better in back testing. Do the back testing on PV and remember that fees are already included. It doesn't matter if you are paying a 1% fee if you are getting the outperformance (outperformance of 2.56% CAGR according to the back test over the UPRO/EDV mix). Another big reason that I personally like PSDLX is because of the active bond portfolio (mix of corporate and LTT). Bonds are a place where active management can (doesn't mean always) work.

One final thought. Everyone is scared of bond yields now, but it too shall pass. The 60/40 has been given up for dead more times then any portfolio I know of, but it continues to work just fine.
euphonious
Posts: 136
Joined: Tue Aug 04, 2020 2:43 am

Re: Why not 100% PSLDX?

Post by euphonious »

garlandwhizzer wrote: Sun Apr 11, 2021 1:53 pm First, there is no strategy for investing outperformance that does not have capacity restraints. If sufficient investor money, swayed by excellent backtesting results flows into PSLDX, its alpha will be diluted and revert toward zero. No strategy is immune from asset bloat.
At what point do you think asset bloat becomes an issue? It looks like PSLDX currently has $818.2M under management, which seems pretty low compared to other popular funds.
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