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

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adamhg
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Re: Why not 100% PSLDX?

Post by adamhg »

huzaing wrote: Thu Aug 12, 2021 11:28 am Will these investments like PSLDX or HFEA (UPRO/TMF) suffer from becoming too big or too popular?

I am asking along the lines of something like ARKK. What I read about it was that when it was small, it was perhaps possible for the manger to outperform. But as it grows too big, it would be challenging to continue delivering the same outperformance going forward; becoming more and more difficult. Does that apply to PSLDX or HFEA?

Thanks.
S&P500, ITT/LTTs are some of the most liquid instruments in the market. AKK on the other hand, the companies they invest in have a median market cap of 20B whereas the fund itself has a market cap of 25B. ARKK will move the market in whatever they're invested in whereas it'll be pretty much impossible for PSLDX/UPRO/TMF to get to the equivalent size
huzaing
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Re: Why not 100% PSLDX?

Post by huzaing »

moptop wrote: Thu Aug 12, 2021 11:56 am
huzaing wrote: Thu Aug 12, 2021 11:28 am Will these investments like PSLDX or HFEA (UPRO/TMF) suffer from becoming too big or too popular?

I am asking along the lines of something like ARKK. What I read about it was that when it was small, it was perhaps possible for the manger to outperform. But as it grows too big, it would be challenging to continue delivering the same outperformance going forward; becoming more and more difficult. Does that apply to PSLDX or HFEA?

Thanks.
They are both essentially index strategies and not actively managed strategies besides some of the bond portion of PSLDX so size shouldn't become an issue unless they can no longer find counter parties.
adamhg wrote: Thu Aug 12, 2021 12:11 pm
huzaing wrote: Thu Aug 12, 2021 11:28 am Will these investments like PSLDX or HFEA (UPRO/TMF) suffer from becoming too big or too popular?

I am asking along the lines of something like ARKK. What I read about it was that when it was small, it was perhaps possible for the manger to outperform. But as it grows too big, it would be challenging to continue delivering the same outperformance going forward; becoming more and more difficult. Does that apply to PSLDX or HFEA?

Thanks.
S&P500, ITT/LTTs are some of the most liquid instruments in the market. AKK on the other hand, the companies they invest in have a median market cap of 20B whereas the fund itself has a market cap of 25B. ARKK will move the market in whatever they're invested in whereas it'll be pretty much impossible for PSLDX/UPRO/TMF to get to the equivalent size

Okay makes sense. Thanks for this input
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

codoriti wrote: Wed Aug 11, 2021 5:45 am
jarjarM wrote: Tue Aug 10, 2021 12:24 pm
S4C5 wrote: Tue Aug 10, 2021 10:03 am PSLDX has a $1M minimum investment. For those seeking some exposure to this kind of investment without allocating such a large amount of capital, what's the best alternative.

On Fidelity, there is a minimum $1M. Not sure what others are talking about buying less but having to pay a fee.
Schwab minimum is $100k w/ $50 fee but no fee for dividend reinvestment. I think M1 maybe even lower, checkout the last 2 pages of this thread and there's ample discussion on this.
Not true on the Schwab $100k minimum for some time now -- https://www.schwab.wallst.com/Prospect/ ... mbol=PSLDX

$2500 for Brokerage and $1000 for IRA, but yes there is a $50 purchase fee.
Oh that's right, tells you how long ago I purchased PSLDX. :oops:
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

codoriti wrote: Wed Aug 11, 2021 5:45 am

Not true on the Schwab $100k minimum for some time now -- https://www.schwab.wallst.com/Prospect/ ... mbol=PSLDX

$2500 for Brokerage and $1000 for IRA, but yes there is a $50 purchase fee.
Technically it's not a flat $50 fee. There is no fee with purchases under $100, and for purchases above $100 it is a percentage with a max fee of $50 (I forget the %).
DMoogle
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Re: Why not 100% PSLDX?

Post by DMoogle »

Purchase fees get brought here so frequently... not sure if this is possible, but has anybody explored just opening an IRA with PIMCO and purchasing shares directly? I'd have to think that would be free, even if it's a tiny bit of hassle.
huzaing
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Re: Why not 100% PSLDX?

Post by huzaing »

Hydromod wrote: Wed Aug 11, 2021 8:35 am
huzaing wrote: Wed Aug 11, 2021 8:24 am I've come across two replications of PSLDX with ETFs:

1. 50% SSO + 50% UBT

2. 25% VOO + 25% UPRO + 25% TLT + 25% TMF

Which is better or more recommended?
Version 2 has about half the explicit ER (the 2x and 3x funds have about the same ER), but the internal (hidden) borrowing costs are doubled for the 3x vs. 2x. You'd probably have a bit faster drift for version 2.

I'd go with version 2 if only because all of the funds are much more liquid.
From the other thread seems like 43/57 UPRO/EDV can also replicate PSLDX?
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

I know bond did well today but didn't expect PSLDX to be up 1.3% :beer
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

jarjarM wrote: Fri Aug 13, 2021 6:40 pm I know bond did well today but didn't expect PSLDX to be up 1.3% :beer
Was coming here to post the same. I love days like this where PSLDX trounces even my UPRO. :sharebeer
Booogle
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Re: Why not 100% PSLDX?

Post by Booogle »

What happens to PSLDX when interest rate rise?

Isn't it going to plummet?
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

Booogle wrote: Sat Aug 14, 2021 7:48 pm What happens to PSLDX when interest rate rise?

Isn't it going to plummet?
That's the plan. The value of everything in the universe gets revalued based on the cost of capital.

Hide if you think you can.
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huzaing
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Re: Why not 100% PSLDX?

Post by huzaing »

Can someone please share the historic PSLDX simulation?
Booogle
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Re: Why not 100% PSLDX?

Post by Booogle »

firebirdparts wrote: Sat Aug 14, 2021 7:53 pm
Booogle wrote: Sat Aug 14, 2021 7:48 pm What happens to PSLDX when interest rate rise?

Isn't it going to plummet?
That's the plan. The value of everything in the universe gets revalued based on the cost of capital.

Hide if you think you can.

what
mutedbytes
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Re: Why not 100% PSLDX?

Post by mutedbytes »

huzaing wrote: Sat Aug 14, 2021 7:56 pm Can someone please share the historic PSLDX simulation?
The most representative (excluding fees, borrowing costs, tracking error, etc) would be something like

100% VFINX (or SPY)
100% VBLLX (or BLV)
-100% Cash/STT?

since VFINX and VBLLX track the same indices that PSLDX targets. Not sure how far back this might get you.
huzaing
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Re: Why not 100% PSLDX?

Post by huzaing »

Can PSLDX play a role in Early Retirement?

If so, how would that work and what would it look like?
PSLDX is not recommended in taxable, but I think for early retirement the main account would be the taxable account.

Would appreciate any discussion on this aspect, please.
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

huzaing wrote: Sun Aug 15, 2021 9:36 pm Can PSLDX play a role in Early Retirement?

If so, how would that work and what would it look like?
PSLDX is not recommended in taxable, but I think for early retirement the main account would be the taxable account.

Would appreciate any discussion on this aspect, please.
Well, PSLDX throws off a lot of distributions each quarter. Total return should always be the focus, but if I was of the mindset to live (partially at least) off of distributions, I'd feel much better about doing that with PSLDX than individual stocks or etfs which focus on dividends. It would be a much more diversified approach than those other options.
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

huzaing wrote: Sun Aug 15, 2021 9:36 pm Can PSLDX play a role in Early Retirement?

If so, how would that work and what would it look like?
PSLDX is not recommended in taxable, but I think for early retirement the main account would be the taxable account.

Would appreciate any discussion on this aspect, please.
It's not dependable, but you're right, it is well-timed. The distributions being thrown off are (mostly) the result of S&P return. So if the return is negative, it actually creates a deficit that PIMCO has to pay out, if I understand correctly the prospectus. I imagine they have to pay that by selling bonds in a typical downturn scenario. In the last 10 years, there just aren't very many occasions where that's been negative. Comparing these payouts to dividends is not the right thing to do, really. They're not dividends. They are mostly automatic payouts of the S&P return, and I guess they have the worst possible tax treatment, but I don't pay taxes on PSLDX, so I could certainly be proved wrong.

That begs the question, I guess, whether it's the best/cheapest source of leverage. Leverage is what you're getting, that and an actively managed long term bond fund. You have to ask yourself whether you actually want an actively managed long term bond fund. If the tax treatment is "worst available" then clearly there's no further magic to it. You could do it yourself. Selling something like SSO would have better tax treatment, I think.
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kevinf
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Re: Why not 100% PSLDX?

Post by kevinf »

My holdings summary at Vanguard is listing PSLDX with an expense ratio of 0.61% instead of the usual 1.01% today. This appears to be the ER for the 'Institutional Class' shares versus the 'Class A' shares ER of 1.01%.
Institutional Class and I-2
The minimum initial investment for Institutional Class and I-2 shares of the Fund is $1 million, except that the minimum initial investment may be modified for certain financial firms that submit orders on behalf of their customers.
Vanguard Fund Summary
PSLDX Prospectus

Has Vanguard struck a deal with Pimco?
isubrama
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Re: Why not 100% PSLDX?

Post by isubrama »

kevinf wrote: Mon Aug 16, 2021 7:30 pm My holdings summary at Vanguard is listing PSLDX with an expense ratio of 0.61% instead of the usual 1.01% today. This appears to be the ER for the 'Institutional Class' shares versus the 'Class A' shares ER of 1.01%.
Institutional Class and I-2
The minimum initial investment for Institutional Class and I-2 shares of the Fund is $1 million, except that the minimum initial investment may be modified for certain financial firms that submit orders on behalf of their customers.
Vanguard Fund Summary
PSLDX Prospectus

Has Vanguard struck a deal with Pimco?
Curious, does Fidelity minimum requirement comes from PSLDX Inst ? Wouldn't the Inst class have unique ticker ?
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

isubrama wrote: Tue Aug 17, 2021 12:38 am
Wouldn't the Inst class have unique ticker ?
It would. PSLDX itself is the institutional class and now has ER of .61 on PIMCO's website.

Institutional class is the only share class of this fund. I don't see a "Class A" I don't know if PIMCo just uses that chart for multiple products, or if somebody at PIMCO mixed up one of their other products that actually has class A shares. But clearly there is only one class. If they make another class it would have to have a ticker.
Last edited by firebirdparts on Tue Aug 17, 2021 2:53 pm, edited 1 time in total.
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kevinf
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Re: Why not 100% PSLDX?

Post by kevinf »

I'm interested in the reason behind Pimco dropping the fund ER by 40 basis points. :shock:
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

Oh wow. The Schwab page for this fund updated to the .61% expense ratio as well. Can't complain about that.
DMoogle
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Re: Why not 100% PSLDX?

Post by DMoogle »

kevinf wrote: Tue Aug 17, 2021 2:53 pm I'm interested in the reason behind Pimco dropping the fund ER by 40 basis points. :shock:
Whew, thanks for the confirmation. I could've sworn that it was around 1%, but when I saw ~0.6% the other day, I was like "huh..."
jarjarM
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Re: Why not 100% PSLDX?

Post by jarjarM »

DMoogle wrote: Tue Aug 17, 2021 3:35 pm
kevinf wrote: Tue Aug 17, 2021 2:53 pm I'm interested in the reason behind Pimco dropping the fund ER by 40 basis points. :shock:
Whew, thanks for the confirmation. I could've sworn that it was around 1%, but when I saw ~0.6% the other day, I was like "huh..."
Oh wow, it's true, that's good for all us. :beer
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

Very rare situation where I feel like a .61% expense ratio is soooo cheap lol
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kevinf
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Re: Why not 100% PSLDX?

Post by kevinf »

This puts it much more in line with NTSX, which has an ER of .20 but is a far simpler fund to manage. Given the increased leverage of PSLDX and the complexity of both the bond portion and the equities derivatives I'd say that the .61 is a reasonable number. The ER reduction will also help its performance against alternatives in the long run.
dalekinvades
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Re: Why not 100% PSLDX?

Post by dalekinvades »

The most representative (excluding fees, borrowing costs, tracking error, etc) would be something like

100% VFINX (or SPY)
100% VBLLX (or BLV)
-100% Cash/STT?
My understanding based on the summary in their prospectus is that the fund purchases 100% bonds directly and borrows against this (using the bonds as collateral) to invest in S&P futures to get the 100% stock allocation.

I don't think my understanding is correct because:

1. You don't need to borrow 100% short term cash since one can buy futures is a fraction of value of the intended securities. Why does the fund borrow 100% Cash (3 month LIBOR)?

2. I see references to 100% bonds + 100% stocks - 100% 3-month LIBOR in the summary but the asset allocation from schwab as
Stocks, Bonds, Cash as 100%, 160%, -160%

https://www.schwab.com/research/mutual- ... olio/psldx

Appreciate if someone can clarify.
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OuterBanks
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Re: Why not 100% PSLDX?

Post by OuterBanks »

kevinf wrote: Tue Aug 17, 2021 2:53 pm I'm interested in the reason behind Pimco dropping the fund ER by 40 basis points. :shock:
“Just when I thought I was out, they pull me back in!“
-The Godfather: Part III
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

dalekinvades wrote: Tue Aug 17, 2021 3:53 pm
The most representative (excluding fees, borrowing costs, tracking error, etc) would be something like

100% VFINX (or SPY)
100% VBLLX (or BLV)
-100% Cash/STT?
My understanding based on the summary in their prospectus is that the fund purchases 100% bonds directly and borrows against this (using the bonds as collateral) to invest in S&P futures to get the 100% stock allocation.

I don't think my understanding is correct because:

1. You don't need to borrow 100% short term cash since one can buy futures is a fraction of value of the intended securities. Why does the fund borrow 100% Cash (3 month LIBOR)?

2. I see references to 100% bonds + 100% stocks - 100% 3-month LIBOR in the summary but the asset allocation from schwab as
Stocks, Bonds, Cash as 100%, 160%, -160%

https://www.schwab.com/research/mutual- ... olio/psldx

Appreciate if someone can clarify.
The fund consists mainly of an actively managed long term bond fund plus S&p 500 return swap contracts with notional value approximately equal to the total assets of the fund.
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TXGator
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Re: Why not 100% PSLDX?

Post by TXGator »

It is lowered at TD as well, but it looks like the minimum was raised back up to $1M
mrjohnanderson007
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Re: Why not 100% PSLDX?

Post by mrjohnanderson007 »

I thought the previous minimum buy in of PSLDX at Vanguard was $50k. It's now $25k. Did this change as well or is my memory incorrect?
iskey
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Re: Why not 100% PSLDX?

Post by iskey »

mrjohnanderson007 wrote: Sun Aug 22, 2021 9:42 am I thought the previous minimum buy in of PSLDX at Vanguard was $50k. It's now $25k. Did this change as well or is my memory incorrect?
I bought $25k at Vanguard in February this year. It was my first purchase of PSLDX, so I can't speak to the minimums before that.
tcrez
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Re: Why not 100% PSLDX?

Post by tcrez »

I’m coming on this thread a bit late but have read much of it and the prospectus.

One question I had, why does PSLDX hold substantial non US treasury bonds? Historically corporate, mortgage, junk, foreign bonds have dipped during recessions while US government has risen. I understand that the stocks + bond strategy (HFEA) is only effective when stocks are paired with government bonds not any old bonds.

Just look at JNK (junk bonds) during March 2020 and you’ll see the massive crash. Compare with TLT which rose considerably and would have been a good way to balance out the drop in SPY.
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

I assume they think they can outsmart the market, and they are proceeding based on what they believe. You have to have that mentality to run a fund, don't you?

The good news is, if you just want to do treasuries, you already know how to do that with all sorts of cheap leverage and free trades and no minimums.
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Semantics
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Re: Why not 100% PSLDX?

Post by Semantics »

joelin02 wrote: Sun Aug 22, 2021 12:52 pm I’m coming on this thread a bit late but have read much of it and the prospectus.

One question I had, why does PSLDX hold substantial non US treasury bonds? Historically corporate, mortgage, junk, foreign bonds have dipped during recessions while US government has risen. I understand that the stocks + bond strategy (HFEA) is only effective when stocks are paired with government bonds not any old bonds.

Just look at JNK (junk bonds) during March 2020 and you’ll see the massive crash. Compare with TLT which rose considerably and would have been a good way to balance out the drop in SPY.
The name of the fund may contain the answer: StocksPLUS. I think the objective is for the bond portion of the portfolio to enhance the returns, not necessarily to maximize crash protection or be a lightweight version of HFEA. Presumably PIMCO thinks they can get better returns from the bond portion with diversification and riskier types of bonds.
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Re: Why not 100% PSLDX?

Post by infotrader »

iskey wrote: Sun Aug 22, 2021 9:54 am
mrjohnanderson007 wrote: Sun Aug 22, 2021 9:42 am I thought the previous minimum buy in of PSLDX at Vanguard was $50k. It's now $25k. Did this change as well or is my memory incorrect?
I bought $25k at Vanguard in February this year. It was my first purchase of PSLDX, so I can't speak to the minimums before that.
I bought it about 2 years ago after seeing this thread. It was $25k.
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

While I have basically no interest in active funds, I do feel like PIMCO's track record with active bond trading is compelling. Being aggressive and in the accumulation phase, my bond holdings are very limited. These are some reasons why I like having a portion of my portfolio in this fund. Basically, the bond portion is PIMCO's attempt to capture excess returns over a pure S&P500 fund.

You can look at how TLT did during the COVID crash, but you can also look at how TLT did during the first half of this year. PSLDX didn't do so hot in riding out the COVID crash, but it managed to keep up with the S&P500 in the first half of 2021 while TLT were holding back the portfolios of everyone who held them. One of the reasons I like running both HFEA and PSLDX.
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Re: Why not 100% PSLDX?

Post by Booogle »

TXGator wrote: Thu Aug 19, 2021 12:01 pm It is lowered at TD as well, but it looks like the minimum was raised back up to $1M
TD Ameritrade has no minimum.

And its institutional class.
tcrez
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Re: Why not 100% PSLDX?

Post by tcrez »

I'm still wondering about how this fund can remain solvent when having a the equivalent of 100% stocks, 100% bonds, -100% cash.

There are many risks here.

When stocks drop, corporate bonds, junk bonds, real estate bonds (especially during the GFC) will fall alongside.

If everything fell 50% and you had -100% cash, you would be effectively wiped out.

If they don't borrow cash for the fund and just do 90% bonds, and 10% leveraged S&P (using options), the options would be wiped out over and over as the market drops and then you would still be permanently damaged.

I don't see how this fund can survive GFC and March 2020 and come back stronger than ever.
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Re: Why not 100% PSLDX?

Post by huzaing »

rchmx1 wrote: Mon Aug 23, 2021 2:13 am One of the reasons I like running both HFEA and PSLDX.
I didn't get it, can someone explain this please. I thought it's mostly if you want more risk/leverage, 3x vs 2x
huzaing
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Re: Why not 100% PSLDX?

Post by huzaing »

Booogle wrote: Mon Aug 23, 2021 6:44 am
TD Ameritrade has no minimum.

What's their transaction fee?
Ramjet
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Re: Why not 100% PSLDX?

Post by Ramjet »

huzaing wrote: Tue Aug 24, 2021 6:54 am
Booogle wrote: Mon Aug 23, 2021 6:44 am
TD Ameritrade has no minimum.

What's their transaction fee?
$50 if I remember right
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Re: Why not 100% PSLDX?

Post by rascott »

joelin02 wrote: Mon Aug 23, 2021 11:07 pm I'm still wondering about how this fund can remain solvent when having a the equivalent of 100% stocks, 100% bonds, -100% cash.

There are many risks here.

When stocks drop, corporate bonds, junk bonds, real estate bonds (especially during the GFC) will fall alongside.

If everything fell 50% and you had -100% cash, you would be effectively wiped out.

If they don't borrow cash for the fund and just do 90% bonds, and 10% leveraged S&P (using options), the options would be wiped out over and over as the market drops and then you would still be permanently damaged.

I don't see how this fund can survive GFC and March 2020 and come back stronger than ever.
They don't use options. They use SP500 futures contracts.

You can go review how this fund performed in 2008 and 2020. It did better than SP500 in both instances. The long term bonds were a ballast....as interest rates often fall during stock crisis.
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Re: Why not 100% PSLDX?

Post by Ramjet »

huzaing wrote: Tue Aug 24, 2021 6:52 am
rchmx1 wrote: Mon Aug 23, 2021 2:13 am One of the reasons I like running both HFEA and PSLDX.
I didn't get it, can someone explain this please. I thought it's mostly if you want more risk/leverage, 3x vs 2x
PSLDX has actively managed bonds where the HFEA doesn't. I think it has corporates, LTT, MBS, etc.
Booogle
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Re: Why not 100% PSLDX?

Post by Booogle »

Can I put all my IRA life savings into this fund?

I'm talking over $2,000,000.

I don't mind underperforming the S&P 500.

My concern is being completely wiped out.
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Re: Why not 100% PSLDX?

Post by Booogle »

rascott wrote: Tue Aug 24, 2021 7:14 am The long term bonds were a ballast....as interest rates often fall during stock crisis.
Then what happens when the economy is good and interest rates rise?
rchmx1
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Re: Why not 100% PSLDX?

Post by rchmx1 »

Booogle wrote: Tue Aug 24, 2021 7:48 am
rascott wrote: Tue Aug 24, 2021 7:14 am The long term bonds were a ballast....as interest rates often fall during stock crisis.
Then what happens when the economy is good and interest rates rise?
Then you rely on PIMCO's active trading to minimize the hit to the fund. We had some of that in Q3&4 of last year and Q1&2 of this year, and while PSLDX lagged the S&P500 a bit, it was able to catch up during Q2. Performed a bit better than just holding treasuries.
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Re: Why not 100% PSLDX?

Post by rascott »

Booogle wrote: Tue Aug 24, 2021 7:48 am
rascott wrote: Tue Aug 24, 2021 7:14 am The long term bonds were a ballast....as interest rates often fall during stock crisis.
Then what happens when the economy is good and interest rates rise?
The equities go up? Obviously there are all kinds of scenarios where hypothetically the fund wouldn't do well.
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Re: Why not 100% PSLDX?

Post by RosieQ »

rascott wrote: Tue Aug 24, 2021 9:49 am
Booogle wrote: Tue Aug 24, 2021 7:48 am
rascott wrote: Tue Aug 24, 2021 7:14 am The long term bonds were a ballast....as interest rates often fall during stock crisis.
Then what happens when the economy is good and interest rates rise?
The equities go up? Obviously there are all kinds of scenarios where hypothetically the fund wouldn't do well.
Also I think it's worth noting that this fund is likely to either outperform or underperform the S&P 500, and I think that the chance of outperformance is greater given that the stock market on average goes up and bonds usually provide some (even if rather modest lately) return and you'll get 100% exposure to both. I often see comments both here and in other investment circles worried about full blown collapse of the fund due to the leverage etc which just doesn't seem possible. In my mind I'm mainly considering a period of relative underperformance due to interest rate risk etc as the main potential downside. I think that this risk is similar in magnitude to things like international stocks continuing to underperform due to some macroeconomic trends, yet many invest in them anyways.
jarjarM
Posts: 2511
Joined: Mon Jul 16, 2018 1:21 pm

Re: Why not 100% PSLDX?

Post by jarjarM »

Booogle wrote: Tue Aug 24, 2021 7:36 am Can I put all my IRA life savings into this fund?

I'm talking over $2,000,000.

I don't mind underperforming the S&P 500.

My concern is being completely wiped out.
You really should consider your own risk tolerance before putting all your IRA saving into this. While the chance is complete wipe out is small, it's probably bigger than your typical 50/50 balanced fund due to leverage. And expense ratio is a bit higher too. So you may want to really assess your comfort level first. Full disclosure, I have 7 figure in the fund and feel comfortable with it.
jarjarM
Posts: 2511
Joined: Mon Jul 16, 2018 1:21 pm

Re: Why not 100% PSLDX?

Post by jarjarM »

joelin02 wrote: Mon Aug 23, 2021 11:07 pm I'm still wondering about how this fund can remain solvent when having a the equivalent of 100% stocks, 100% bonds, -100% cash.

There are many risks here.

When stocks drop, corporate bonds, junk bonds, real estate bonds (especially during the GFC) will fall alongside.

If everything fell 50% and you had -100% cash, you would be effectively wiped out.

If they don't borrow cash for the fund and just do 90% bonds, and 10% leveraged S&P (using options), the options would be wiped out over and over as the market drops and then you would still be permanently damaged.

I don't see how this fund can survive GFC and March 2020 and come back stronger than ever.
Remember, the fund is using SP500 swap contract for the 100% SP500 exposure (no margin requirement like retail investors). From 1/1/2020 to 8/23/21, PSLDX total return 58.5%, VFINX (SP500) total return 41.0%. The drop in bond yield helped propel the fund performance ahead of s&p500. Going forward, if interest rate do raise significantly, one would expect some lackluster performance but that's expected with the 100% total bond exposure. Some of us buy into the argument that Pimco's bond active management controls that bond risk reasonably well. BTW, PSLDX started on Aug 2007 so it did went thru GFC and survived.
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