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

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er999
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by er999 »

firebirdparts wrote: Wed Sep 28, 2022 4:20 pm
zdjelar wrote: Tue Sep 27, 2022 9:17 pm Let’s say you could go in right now with >$1M+ (tax advantaged account) at the current historic low, would you do it? How would you project the future scenarios?
I contemplate exactly that. In fact, one of the things I do in my idle time is to guess how long we continue to struggle here. I kinda think it'll be a year, but the main point is that it's not really urgent. But sometimes I am tempted.

FWIW I have held PSLDX probably longer than the rest of you, and I don't know what all my purchase dates were, but right now, I'm down to where I started with zero gains according to Fidelity's accounting of the purchase history.
When did you buy most of it roughly? 2 years ago, 5 years ago, or 10 years ago?
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OuterBanks
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by OuterBanks »

4.58% today, things are looking up.
PoorHomieQuan
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

firebirdparts wrote: Wed Sep 28, 2022 4:20 pm
zdjelar wrote: Tue Sep 27, 2022 9:17 pm Let’s say you could go in right now with >$1M+ (tax advantaged account) at the current historic low, would you do it? How would you project the future scenarios?
I contemplate exactly that. In fact, one of the things I do in my idle time is to guess how long we continue to struggle here. I kinda think it'll be a year, but the main point is that it's not really urgent. But sometimes I am tempted.

FWIW I have held PSLDX probably longer than the rest of you, and I don't know what all my purchase dates were, but right now, I'm down to where I started with zero gains according to Fidelity's accounting of the purchase history.
That is no doubt due to the distributions, which reduce the price.

However it is worth noting that for all purchases after about 2015 straight VOO is doing better.

I would say that with the ten year at a 14 year high now is probably a better entry point. But who knows.
garlandwhizzer
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by garlandwhizzer »

PSLDX has lost 47% of its value YTD. That is clearly why not 100% PSLDX for me personally. Its longer term returns are still strong but that is because it loaded up on long term bonds and US equity during the greatest US long term bond bull market in history and a period of unequaled US stock performance. The largely unrecognized bond bubble (lowest US Treasury yields in history, although almost no one believed that it was a bubble) has burst dramatically in the last 9 months. Long term Treasuries which had been the big winners for decades have completely imploded in that short period of time, more so than US equity which has also suffered a bear market. In short, after decades of risk adjusted outperformance 2022 has been a disaster for PSLDX with YTD losses of 47%. Betting on it now is betting on reversion the mean of them glory years prior to 1982 up to 2021. The question is what mean we will revert to, that glorious era or the one that preceded it, 1966 - 1981 in which increasing inflation and stagflation killed both US stocks and long term bonds for 15 years.

The inflation genie is out of the bottle now. It is much more difficult to get that genie back into the bottle than most who have until now never seen severe inflation suspect. It is unknown IMO how long inflation/stagflation is going to be a persistent problem. I hope it's over quickly. PSLDX's future returns in large part depends on that. IMO allocation of 100% or any substantial portion of the portfolio to PSLDX is making too strong a bet on knowing a positive near term future up front (inflation getting under control, rebounding US economy, successful soft landing, lower interest rates). If all those good things happen, PSLDX will do well. Bear in mind however, that essentially no one saw the greatest long term Treasury bear market in history before it happened suddenly and severely in 2022. Remember all the posts glorifying LTT at their lowest yields in history. Neither did many see a 2022 bear market in US stocks right after a wonderfully positive year for US equity in 2021. Such is our ability to forecast the future. Bear that in mind if you're tempted to put 100% in PSLDX.

Garland Whizzer
seiyafan
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by seiyafan »

bgf wrote: Wed Sep 28, 2022 12:49 pm
seiyafan wrote: Wed Sep 28, 2022 9:07 am The best timing would be waiting for market to bottom and 30-yr bond to stabilize.
Some stability would be nice…

Meanwhile, thirty-year gilt (British bond) yields closed more than 100 basis points lower at 3.934% after they rose to 5.092% in early trading.

I mean… wow. It’s hard to overemphasize how ***** insane that is.
Yes, I read an article saying if the government doesn't intervene the yield would continue go higher and by the time it reaches 7-8% about 90% of UK pension funds will run out of collateral and get wiped out. As a saver myself I have always thought higher yield is a better thing, until it breaks the whole system.
comeinvest
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by comeinvest »

kevinf wrote: Wed Sep 28, 2022 1:16 pm
comeinvest wrote: Wed Sep 28, 2022 1:43 am ... which I think is a problem. Equity index derivatives have an implied financing spread to treasuries of ca. 0.5%, while treasury futures (that NTSX uses) have a financing spread of about 0.2% - 0.35%. So all other things being equal, NTSX has an edge.
Can you unpack this for me? The leverage is cheaper for NTSX but the expected return is also less for Treasurys than for equities. You expect to get more return per dollar of leverage for equities, and with PSLDX having more leverage on top of that I'd consider PSLDX to have the edge (in total return).
What you say is true, and PSLDX may outperform NTSX for exactly the reasons you cited. But that's not what makes it a good fund. The risk-adjusted returns matter, and if I can use it efficiently within my total portfolio. For the latter two, the expense ratio and the cost of leverage as a spread to the risk-free rate matter.
Besides that, money is fungible, and so is borrowed money. If you have equities and bonds in your portfolio and some debt, the mechanics of the debt doesn't matter. Associating the debt with either the equities or bonds is irrelevant. It's a negative (cash) position in your portfolio, not more and not less.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by comeinvest »

garlandwhizzer wrote: Wed Sep 28, 2022 7:08 pm PSLDX has lost 47% of its value YTD. That is clearly why not 100% PSLDX for me personally. Its longer term returns are still strong but that is because it loaded up on long term bonds and US equity during the greatest US long term bond bull market in history and a period of unequaled US stock performance. The largely unrecognized bond bubble (lowest US Treasury yields in history, although almost no one believed that it was a bubble) has burst dramatically in the last 9 months. Long term Treasuries which had been the big winners for decades have completely imploded in that short period of time, more so than US equity which has also suffered a bear market. In short, after decades of risk adjusted outperformance 2022 has been a disaster for PSLDX with YTD losses of 47%. Betting on it now is betting on reversion the mean of them glory years prior to 1982 up to 2021. The question is what mean we will revert to, that glorious era or the one that preceded it, 1966 - 1981 in which increasing inflation and stagflation killed both US stocks and long term bonds for 15 years.

The inflation genie is out of the bottle now. It is much more difficult to get that genie back into the bottle than most who have until now never seen severe inflation suspect. It is unknown IMO how long inflation/stagflation is going to be a persistent problem. I hope it's over quickly. PSLDX's future returns in large part depends on that. IMO allocation of 100% or any substantial portion of the portfolio to PSLDX is making too strong a bet on knowing a positive near term future up front (inflation getting under control, rebounding US economy, successful soft landing, lower interest rates). If all those good things happen, PSLDX will do well. Bear in mind however, that essentially no one saw the greatest long term Treasury bear market in history before it happened suddenly and severely in 2022. Remember all the posts glorifying LTT at their lowest yields in history. Neither did many see a 2022 bear market in US stocks right after a wonderfully positive year for US equity in 2021. Such is our ability to forecast the future. Bear that in mind if you're tempted to put 100% in PSLDX.

Garland Whizzer
I don't think the long-term performance of PSLDX depends heavily on inflation numbers, even less on short- to medium-term inflation numbers. It will probably depend on *changes* to long-term inflation expectations and changes to real yields, with the expectations currently implied in the yield curve and in the TIPS/treasuries spread as a baseline. Yield expectations are currently ca. 3.5% across the curve, with the short end a little bit higher; long-run implied inflation expectations are currently ca. 2.5%. Whether that is high or low, is anybody's guess; but like with all investments, the longer the passage of time, the more the average term premium will contribute to performance, and the less the starting point will matter.

I also would say that if anything, now is a better time to invest in either stocks or bonds than in 2021, as expected returns are just simply higher and bond yields have more distance from the zero lower bound.
PoorHomieQuan
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

garlandwhizzer wrote: Wed Sep 28, 2022 7:08 pm PSLDX has lost 47% of its value YTD. That is clearly why not 100% PSLDX for me personally
I certainly wouldn't endorse 100% psldx at any point in one's career but definitely not within a year of when one needs the money. If one year return is not the goal then why does a ytd return matter?

PSLDX seems to have outperformed in the last decade in a way we probably shouldn't anticipate over the next decade or maybe future decades after that. Lots of people are interested because of past outperformance and performance chasing, sure. But there are scenarios where it makes sense, specifically where one wants to take advantage of the"flight to safety" that accompanies many black swan events. I see it is a worthwhile diversifier for a certain percentage of the portfolio.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

er999 wrote: Wed Sep 28, 2022 4:45 pm
firebirdparts wrote: Wed Sep 28, 2022 4:20 pm
zdjelar wrote: Tue Sep 27, 2022 9:17 pm Let’s say you could go in right now with >$1M+ (tax advantaged account) at the current historic low, would you do it? How would you project the future scenarios?
I contemplate exactly that. In fact, one of the things I do in my idle time is to guess how long we continue to struggle here. I kinda think it'll be a year, but the main point is that it's not really urgent. But sometimes I am tempted.

FWIW I have held PSLDX probably longer than the rest of you, and I don't know what all my purchase dates were, but right now, I'm down to where I started with zero gains according to Fidelity's accounting of the purchase history.
When did you buy most of it roughly? 2 years ago, 5 years ago, or 10 years ago?
It looks like 1/3 in 2019, 1/3 in 2021, and 1/3 recently, ignoring the automatic purchases where dividends have been reinvested, and you can well imagine that was a lot of money.

I might have made some earlier purchases that Fido considers those shares sold, I don't know. 2019 was as far back as I could go in the "purchase history"
This time is the same
superjames1992
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by superjames1992 »

Today isn’t going to be pretty.
PoorHomieQuan
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

superjames1992 wrote: Mon Sep 26, 2022 11:17 pm Another rough day. Now down 33% on my position. Mildly concerned about the amount of money I pumped into this now, but I figure it’s time to ride it out. But if the market drops another hefty bit I’m going to be in bad shape!
I think one lesson some people here may be learning is that this fund may not be worth the headache/anxiety even if it does wind up outperforming VTI by 1% long term.
comeinvest
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by comeinvest »

PoorHomieQuan wrote: Mon Oct 03, 2022 7:59 pm
superjames1992 wrote: Mon Sep 26, 2022 11:17 pm Another rough day. Now down 33% on my position. Mildly concerned about the amount of money I pumped into this now, but I figure it’s time to ride it out. But if the market drops another hefty bit I’m going to be in bad shape!
I think one lesson some people here may be learning is that this fund may not be worth the headache/anxiety even if it does wind up outperforming VTI by 1% long term.
It handsomely outperformed during the relatively short time period since inception ca. 2008, despite the recent drawdown.
PoorHomieQuan
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

comeinvest wrote: Mon Oct 03, 2022 10:15 pm
PoorHomieQuan wrote: Mon Oct 03, 2022 7:59 pm
superjames1992 wrote: Mon Sep 26, 2022 11:17 pm Another rough day. Now down 33% on my position. Mildly concerned about the amount of money I pumped into this now, but I figure it’s time to ride it out. But if the market drops another hefty bit I’m going to be in bad shape!
I think one lesson some people here may be learning is that this fund may not be worth the headache/anxiety even if it does wind up outperforming VTI by 1% long term.
It handsomely outperformed during the relatively short time period since inception ca. 2008, despite the recent drawdown.
However it has underperformed over the last 5 years. It's easier to look at 10+ years of history than to live through it. For someone who invested in 2015 it might be hard to keep the faith at this point. My point is that even if it does outperform marginally, it seems unlikely to be the difference between meeting and not meeting one's goals, and for those given to anxiety or market watching, it's perhaps a poor trade-off. YMMV.

We may need to see how it performs over at least one complete market cycle, if not more than one, to have more confidence in the repeatability of its past outperformance.

ps in the fund literature I noticed it has underperformed its own (secondary) benchmark which is [SPX + Long term bond index - 3 month LIBOR] by a fraction of a percent over every listed time period, even before fees, so the PIMCO magic is not helping.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by tcrez »

If short term rates equal long term rates, would that mean the bond part of this fund would do nothing?

In fact short term rates have to be a fair amount lower than long term to cancel out the expense ratio. Otherwise this is just a SPY tracker.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by CletusCaddy »

tcrez wrote: Tue Oct 04, 2022 8:11 pm If short term rates equal long term rates, would that mean the bond part of this fund would do nothing?

In fact short term rates have to be a fair amount lower than long term to cancel out the expense ratio. Otherwise this is just a SPY tracker.
No, because this fund doesn’t just hold long term Treasuries. It holds a lot of higher yielding corporate bonds.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by CletusCaddy »

The maturity of the bonds is 20 years. If you can hold for that long the bond side will recover. If not you shouldn’t have bought the fund in the first place.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by hiddenpower »

CletusCaddy wrote: Tue Oct 04, 2022 8:49 pm The maturity of the bonds is 20 years. If you can hold for that long the bond side will recover. If not you shouldn’t have bought the fund in the first place.
I mean that’s a little drastic of a timeframe. It’s a volatile diversifier.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by tcrez »

CletusCaddy wrote: Tue Oct 04, 2022 8:49 pm The maturity of the bonds is 20 years. If you can hold for that long the bond side will recover. If not you shouldn’t have bought the fund in the first place.
A 20 year recovery is only true for a declining duration that starts at 20 today and goes to 0 in 20 years. If rates shoot up and you’re at 20 year duration at year 19 you’ll still be toast.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by Random Musings »

superjames1992 wrote: Thu Sep 29, 2022 2:53 pm Today isn’t going to be pretty.
Perhaps as market futures are down about 0.5% right now; the market went from being very oversold to very overbought in 2 days. However, overbought can stay overbought for a while and vice versa. The current two day rally has been interesting as there were back to back NYSE up volume/down volume ratios of over 9 to 1. Typically, when the 9/1 ratio happens twice within a few months or so, stocks tend to be up 3 months down the road. Not sure who first analyzed this but it may have been Marty Zweig. However, I think the markets will respond mostly on the next batch of unemployment figures and how the Fed responds to that. Again, there is "pivot" talk, but not from the Fed yet.

RM
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PoorHomieQuan
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

CletusCaddy wrote: Tue Oct 04, 2022 8:49 pm The maturity of the bonds is 20 years. If you can hold for that long the bond side will recover. If not you shouldn’t have bought the fund in the first place.
I've been thinking about this a bit. I don't think it's true if you're withdrawing from the bond fund all the while, which is effectively what's happening if stocks and bonds go down together, in a historically rarely-precedented way this year. This portfolio is experiencing "sequence of returns risk". You can clearly see that it will never recover from a 40% drawdown, because the amount of outperformance it would have to deliver over the rest of the 20year period is clearly not something this fund can ever promise, or everyone would use it.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by CletusCaddy »

PoorHomieQuan wrote: Sat Oct 08, 2022 11:53 pm
CletusCaddy wrote: Tue Oct 04, 2022 8:49 pm The maturity of the bonds is 20 years. If you can hold for that long the bond side will recover. If not you shouldn’t have bought the fund in the first place.
I've been thinking about this a bit. I don't think it's true if you're withdrawing from the bond fund all the while, which is effectively what's happening if stocks and bonds go down together, in a historically rarely-precedented way this year. This portfolio is experiencing "sequence of returns risk". You can clearly see that it will never recover from a 40% drawdown, because the amount of outperformance it would have to deliver over the rest of the 20year period is clearly not something this fund can ever promise, or everyone would use it.
Not following your logic. The fund is down -47% YTD. For it to recover over next 20 years it only needs to double, which is something like 3.5% CAGR. How is this impossible?
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

I think he's comparing it to the imaginary opportunity allowed by 100% S&P500 20 years from now, which really actually makes pretty good sense here. I suppose, from the language used, we're saying the starting point is maybe about January 1. Anybody with a time machine sells PSLDX around Christmas and switches to 100% S&P500. I'm just reading his mind, could be wrong. he used the word "outperformance."

It's always an issue, what you compare anything to.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by CletusCaddy »

firebirdparts wrote: Sun Oct 09, 2022 8:01 am I think he's comparing it to the imaginary opportunity allowed by 100% S&P500 20 years from now, which really actually makes pretty good sense here. I suppose, from the language used, we're saying the starting point is maybe about January 1. Anybody with a time machine sells PSLDX around Christmas and switches to 100% S&P500. I'm just reading his mind, could be wrong. he used the word "outperformance."

It's always an issue, what you compare anything to.
If that’s the case, then starting point matters more than anything else. Someone who bought into PSLDX at inception (or even 2016) is still ahead of the S&P 500. No recovery necessary.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

Yes, I was comparing to straight sp500. And yes, the starting point would be jan 1 2022. Yields started to rise around that date and it was claimed here that the "bond portion" would recover given sufficient time, so a long term investor should be indifferent to rate hikes. I pointed out why this is false (SORR). It also increases the cost of leverage which isn't part of the typical bond fund recovery timeline math.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

CletusCaddy wrote: Sun Oct 09, 2022 9:01 am
firebirdparts wrote: Sun Oct 09, 2022 8:01 am I think he's comparing it to the imaginary opportunity allowed by 100% S&P500 20 years from now, which really actually makes pretty good sense here. I suppose, from the language used, we're saying the starting point is maybe about January 1. Anybody with a time machine sells PSLDX around Christmas and switches to 100% S&P500. I'm just reading his mind, could be wrong. he used the word "outperformance."

It's always an issue, what you compare anything to.
If that’s the case, then starting point matters more than anything else. Someone who bought into PSLDX at inception (or even 2016) is still ahead of the S&P 500. No recovery necessary.
According to pv, psldx is slightly behind VOO with a starting point of dec 31 2014.

And for what it's worth, I just tested psldx vs sp500 with DCA, 10k per year since psldx inception, which seems like a more realistic test --- and both profiles are dead even. Let's put aside guessing what the future holds for a moment --- if psldx can't beat VOO then it's definitely not worth the added complexity and volatility.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by CletusCaddy »

PoorHomieQuan wrote: Sun Oct 09, 2022 11:56 am
CletusCaddy wrote: Sun Oct 09, 2022 9:01 am
firebirdparts wrote: Sun Oct 09, 2022 8:01 am I think he's comparing it to the imaginary opportunity allowed by 100% S&P500 20 years from now, which really actually makes pretty good sense here. I suppose, from the language used, we're saying the starting point is maybe about January 1. Anybody with a time machine sells PSLDX around Christmas and switches to 100% S&P500. I'm just reading his mind, could be wrong. he used the word "outperformance."

It's always an issue, what you compare anything to.
If that’s the case, then starting point matters more than anything else. Someone who bought into PSLDX at inception (or even 2016) is still ahead of the S&P 500. No recovery necessary.
According to pv, psldx is slightly behind VOO with a starting point of dec 31 2014.

And for what it's worth, I just tested psldx vs sp500 with DCA, 10k per year since psldx inception, which seems like a more realistic test --- and both profiles are dead even. Let's put aside guessing what the future holds for a moment --- if psldx can't beat VOO then it's definitely not worth the added complexity and volatility.
If you’re talking about expected return, then PSLDX by definition has a higher expected return than the S&P 500, as long as globally diversified long bonds (by my estimate currently 5.5%) minus borrowing cost (by my estimate currently 3.5%) exceeds the expense ratio (currently 0.6%).

If you’re talking about market timing, then I’ll just point out that the last time long bonds had such high yields was 2011, and PSLDX beat the pants off the S&P for the following nine years.

If you’re talking about not being able to stomach the volatility, then yeah, I can’t help you there.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

CletusCaddy wrote: Sun Oct 09, 2022 12:30 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 11:56 am
CletusCaddy wrote: Sun Oct 09, 2022 9:01 am
firebirdparts wrote: Sun Oct 09, 2022 8:01 am I think he's comparing it to the imaginary opportunity allowed by 100% S&P500 20 years from now, which really actually makes pretty good sense here. I suppose, from the language used, we're saying the starting point is maybe about January 1. Anybody with a time machine sells PSLDX around Christmas and switches to 100% S&P500. I'm just reading his mind, could be wrong. he used the word "outperformance."

It's always an issue, what you compare anything to.
If that’s the case, then starting point matters more than anything else. Someone who bought into PSLDX at inception (or even 2016) is still ahead of the S&P 500. No recovery necessary.
According to pv, psldx is slightly behind VOO with a starting point of dec 31 2014.

And for what it's worth, I just tested psldx vs sp500 with DCA, 10k per year since psldx inception, which seems like a more realistic test --- and both profiles are dead even. Let's put aside guessing what the future holds for a moment --- if psldx can't beat VOO then it's definitely not worth the added complexity and volatility.
If you’re talking about expected return, then PSLDX by definition has a higher expected return than the S&P 500, as long as globally diversified long bonds (currently yielding 5.0%) minus borrowing cost (by my estimate currently 3.5%) exceeds the expense ratio (currently 0.6%).

If you’re talking about market timing, then I’ll just point out that the last time long bonds had such high yields was 2011, and PSLDX beat the pants off the S&P for the following nine years.

If you’re talking about not being able to stomach the volatility, then yeah, I can’t help you there.
I'm not talking about market timing. I'm talking about this being a poor long term hold. The only direct evidence we have that it works well was a particularly strong bull market at the end of a long period of low inflation and consistent growth. And even then, it has failed at the end of that bull market.

You seem to be willfully ignoring the point about SORR. If stocks and bond NAVs go down at the same time then the negative affect is amplified. There's no chance for a higher interest rate to help you if you had to sell off bonds to cover losses in stocks.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by CletusCaddy »

PoorHomieQuan wrote: Sun Oct 09, 2022 12:42 pm
CletusCaddy wrote: Sun Oct 09, 2022 12:30 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 11:56 am
CletusCaddy wrote: Sun Oct 09, 2022 9:01 am
firebirdparts wrote: Sun Oct 09, 2022 8:01 am I think he's comparing it to the imaginary opportunity allowed by 100% S&P500 20 years from now, which really actually makes pretty good sense here. I suppose, from the language used, we're saying the starting point is maybe about January 1. Anybody with a time machine sells PSLDX around Christmas and switches to 100% S&P500. I'm just reading his mind, could be wrong. he used the word "outperformance."

It's always an issue, what you compare anything to.
If that’s the case, then starting point matters more than anything else. Someone who bought into PSLDX at inception (or even 2016) is still ahead of the S&P 500. No recovery necessary.
According to pv, psldx is slightly behind VOO with a starting point of dec 31 2014.

And for what it's worth, I just tested psldx vs sp500 with DCA, 10k per year since psldx inception, which seems like a more realistic test --- and both profiles are dead even. Let's put aside guessing what the future holds for a moment --- if psldx can't beat VOO then it's definitely not worth the added complexity and volatility.
If you’re talking about expected return, then PSLDX by definition has a higher expected return than the S&P 500, as long as globally diversified long bonds (currently yielding 5.0%) minus borrowing cost (by my estimate currently 3.5%) exceeds the expense ratio (currently 0.6%).

If you’re talking about market timing, then I’ll just point out that the last time long bonds had such high yields was 2011, and PSLDX beat the pants off the S&P for the following nine years.

If you’re talking about not being able to stomach the volatility, then yeah, I can’t help you there.
I'm not talking about market timing. I'm talking about this being a poor long term hold. The only direct evidence we have that it works well was a particularly strong bull market at the end of a long period of low inflation and consistent growth. And even then, it has failed at the end of that bull market.

You seem to be willfully ignoring the point about SORR. If stocks and bond NAVs go down at the same time then the negative affect is amplified. There's no chance for a higher interest rate to help you if you had to sell off bonds to cover losses in stocks.
If you are worried about SORR then your time horizon is not long term. If your time horizon is long term then there is no SORR for you.

And how exactly is PSLDX “selling off bonds to cover losses in stocks”? They have both gone down similarly this year. If one goes down more than the other then the internal rebalancing brings them back into balance.
PoorHomieQuan
Posts: 153
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

CletusCaddy wrote: Sun Oct 09, 2022 12:43 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 12:42 pm
CletusCaddy wrote: Sun Oct 09, 2022 12:30 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 11:56 am
CletusCaddy wrote: Sun Oct 09, 2022 9:01 am

If that’s the case, then starting point matters more than anything else. Someone who bought into PSLDX at inception (or even 2016) is still ahead of the S&P 500. No recovery necessary.
According to pv, psldx is slightly behind VOO with a starting point of dec 31 2014.

And for what it's worth, I just tested psldx vs sp500 with DCA, 10k per year since psldx inception, which seems like a more realistic test --- and both profiles are dead even. Let's put aside guessing what the future holds for a moment --- if psldx can't beat VOO then it's definitely not worth the added complexity and volatility.
If you’re talking about expected return, then PSLDX by definition has a higher expected return than the S&P 500, as long as globally diversified long bonds (currently yielding 5.0%) minus borrowing cost (by my estimate currently 3.5%) exceeds the expense ratio (currently 0.6%).

If you’re talking about market timing, then I’ll just point out that the last time long bonds had such high yields was 2011, and PSLDX beat the pants off the S&P for the following nine years.

If you’re talking about not being able to stomach the volatility, then yeah, I can’t help you there.
I'm not talking about market timing. I'm talking about this being a poor long term hold. The only direct evidence we have that it works well was a particularly strong bull market at the end of a long period of low inflation and consistent growth. And even then, it has failed at the end of that bull market.

You seem to be willfully ignoring the point about SORR. If stocks and bond NAVs go down at the same time then the negative affect is amplified. There's no chance for a higher interest rate to help you if you had to sell off bonds to cover losses in stocks.
If you are worried about SORR then your time horizon is not long term. If your time horizon is long term then there is no SORR for you.

And how exactly is PSLDX “selling off bonds to cover losses in stocks”? They have both gone down similarly this year. If one goes down more than the other then the internal rebalancing brings them back into balance.
I have $10 of bonds and they go to $7. I also borrowed $10 to buy stock futures and they go down in value to $7 as well. Now I still owe $10 but I only have $14 of actual value here, net $4. I have to sell a combination of stock futures and bonds to bring the leverage back down to the correct ratio.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by CletusCaddy »

PoorHomieQuan wrote: Sun Oct 09, 2022 1:06 pm I have $10 of bonds and they go to $7. I also borrowed $10 to buy stock futures and they go down in value to $7 as well. Now I still owe $10 but I only have $14 of actual value here, net $4. I have to sell a combination of stock futures and bonds to bring the leverage back down to the correct ratio.
Mechanically, that's not how the fund deleverages.

PSLDX holds its leverage in the form of S&P Total Return swaps. Multiple contracts are held with a ladder of maturities. You can see the full schedule in my screenshot here: viewtopic.php?p=6851015#p6851015

If the fund's NAV declines and deleveraging needs to happen, then the managers simply let a handful of swap contracts expire without renewal. Nothing happens on the bond side. The bonds are not sold, no permanent loss is locked in.

That being said, what will induce the permanent loss you are worried about is fund outflows during market declines. It looks like there was some outflow in Q1 but that seems to have ended: https://www.morningstar.com/funds/xnas/ ... erformance (Investment Flows section)
comeinvest
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by comeinvest »

CletusCaddy wrote: Sun Oct 09, 2022 12:30 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 11:56 am
CletusCaddy wrote: Sun Oct 09, 2022 9:01 am
firebirdparts wrote: Sun Oct 09, 2022 8:01 am I think he's comparing it to the imaginary opportunity allowed by 100% S&P500 20 years from now, which really actually makes pretty good sense here. I suppose, from the language used, we're saying the starting point is maybe about January 1. Anybody with a time machine sells PSLDX around Christmas and switches to 100% S&P500. I'm just reading his mind, could be wrong. he used the word "outperformance."

It's always an issue, what you compare anything to.
If that’s the case, then starting point matters more than anything else. Someone who bought into PSLDX at inception (or even 2016) is still ahead of the S&P 500. No recovery necessary.
According to pv, psldx is slightly behind VOO with a starting point of dec 31 2014.

And for what it's worth, I just tested psldx vs sp500 with DCA, 10k per year since psldx inception, which seems like a more realistic test --- and both profiles are dead even. Let's put aside guessing what the future holds for a moment --- if psldx can't beat VOO then it's definitely not worth the added complexity and volatility.
If you’re talking about expected return, then PSLDX by definition has a higher expected return than the S&P 500, as long as globally diversified long bonds (by my estimate currently 5.5%) minus borrowing cost (by my estimate currently 3.5%) exceeds the expense ratio (currently 0.6%).

If you’re talking about market timing, then I’ll just point out that the last time long bonds had such high yields was 2011, and PSLDX beat the pants off the S&P for the following nine years.

If you’re talking about not being able to stomach the volatility, then yeah, I can’t help you there.
I wouldn't disagree with your premise that PSLDX has probably higher risk-adjusted return in the long run; but I think your math is not quite correct. The excess return is less than the yield differential, because of volatility decay, which is inherent in all leveraged portfolios.
comeinvest
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by comeinvest »

CletusCaddy wrote: Sun Oct 09, 2022 1:47 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 1:06 pm I have $10 of bonds and they go to $7. I also borrowed $10 to buy stock futures and they go down in value to $7 as well. Now I still owe $10 but I only have $14 of actual value here, net $4. I have to sell a combination of stock futures and bonds to bring the leverage back down to the correct ratio.
Mechanically, that's not how the fund deleverages.

PSLDX holds its leverage in the form of S&P Total Return swaps. Multiple contracts are held with a ladder of maturities. You can see the full schedule in my screenshot here: viewtopic.php?p=6851015#p6851015

If the fund's NAV declines and deleveraging needs to happen, then the managers simply let a handful of swap contracts expire without renewal. Nothing happens on the bond side. The bonds are not sold, no permanent loss is locked in.

That being said, what will induce the permanent loss you are worried about is fund outflows during market declines. It looks like there was some outflow in Q1 but that seems to have ended: https://www.morningstar.com/funds/xnas/ ... erformance (Investment Flows section)
Do you have a reference supporting your assertion that the fund never sells bonds when deleveraging? If true, then they would significantly deviate from their stated asset allocation which I think is 100% equities / 100% bonds, as a percentage of NAV. How would new investors know what they buy into at any give time?
Letting equity index swaps expire is effectively equivalent to selling equities for purposes of asset allocation - it's just terminology / technical mechanics.
If stocks and bonds fall in lockstep like they did so far in 2022, and they only sell equities but no bonds to rebalance their leverage factor, the asset allocation would get seriously skewed. Also, while the volatility decay on the bond side would be eliminated (unless markets fall deep enough so they are forced to sell bonds eventually), the volatility decay on the equities side would be disproportionally higher - they would have to sell a lot of equities in a correlated stock/bond down market, that are not available to participate in the recovery.
PoorHomieQuan
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

comeinvest wrote: Sun Oct 09, 2022 6:44 pm
CletusCaddy wrote: Sun Oct 09, 2022 12:30 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 11:56 am
CletusCaddy wrote: Sun Oct 09, 2022 9:01 am
firebirdparts wrote: Sun Oct 09, 2022 8:01 am I think he's comparing it to the imaginary opportunity allowed by 100% S&P500 20 years from now, which really actually makes pretty good sense here. I suppose, from the language used, we're saying the starting point is maybe about January 1. Anybody with a time machine sells PSLDX around Christmas and switches to 100% S&P500. I'm just reading his mind, could be wrong. he used the word "outperformance."

It's always an issue, what you compare anything to.
If that’s the case, then starting point matters more than anything else. Someone who bought into PSLDX at inception (or even 2016) is still ahead of the S&P 500. No recovery necessary.
According to pv, psldx is slightly behind VOO with a starting point of dec 31 2014.

And for what it's worth, I just tested psldx vs sp500 with DCA, 10k per year since psldx inception, which seems like a more realistic test --- and both profiles are dead even. Let's put aside guessing what the future holds for a moment --- if psldx can't beat VOO then it's definitely not worth the added complexity and volatility.
If you’re talking about expected return, then PSLDX by definition has a higher expected return than the S&P 500, as long as globally diversified long bonds (by my estimate currently 5.5%) minus borrowing cost (by my estimate currently 3.5%) exceeds the expense ratio (currently 0.6%).

If you’re talking about market timing, then I’ll just point out that the last time long bonds had such high yields was 2011, and PSLDX beat the pants off the S&P for the following nine years.

If you’re talking about not being able to stomach the volatility, then yeah, I can’t help you there.
I wouldn't disagree with your premise that PSLDX has probably higher risk-adjusted return in the long run; but I think your math is not quite correct. The excess return is less than the yield differential, because of volatility decay, which is inherent in all leveraged portfolios.
More broadly speaking, what's inherent in leveraged portfolios is path-dependency. Volatility decay is not actually a given --- in a low-volatility environment, you can even come out more ahead than expected.

However it works under the hood, this fund holds both bonds and stocks and uses leverage. In the same way that QQQ could recover to all-time highs before TQQQ does (and the latter may even never happen), PSLDX could permanently lag VOO. YTD for PSLDX is -47%. YTD for VOO is -24%. Assuming we've already seen the bottom (I don't wager this to be very likely), and assuming VOO returns 6% per annum for the next 19 years, PSLDX has to return 8% per annum for the next 19 years to finally break even in comparison. CletusCaddy presents it as a mathematical certainty that the "bond side" will recover but it's obvious that if PSLDX could guarantee beating VOO by 2% for the next 19 years, everyone and their mother would jump on it right now.

This is coming from someone who took the bait and bought some PSLDX before thinking enough about it.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by CletusCaddy »

comeinvest wrote: Sun Oct 09, 2022 6:48 pm
CletusCaddy wrote: Sun Oct 09, 2022 1:47 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 1:06 pm I have $10 of bonds and they go to $7. I also borrowed $10 to buy stock futures and they go down in value to $7 as well. Now I still owe $10 but I only have $14 of actual value here, net $4. I have to sell a combination of stock futures and bonds to bring the leverage back down to the correct ratio.
Mechanically, that's not how the fund deleverages.

PSLDX holds its leverage in the form of S&P Total Return swaps. Multiple contracts are held with a ladder of maturities. You can see the full schedule in my screenshot here: viewtopic.php?p=6851015#p6851015

If the fund's NAV declines and deleveraging needs to happen, then the managers simply let a handful of swap contracts expire without renewal. Nothing happens on the bond side. The bonds are not sold, no permanent loss is locked in.

That being said, what will induce the permanent loss you are worried about is fund outflows during market declines. It looks like there was some outflow in Q1 but that seems to have ended: https://www.morningstar.com/funds/xnas/ ... erformance (Investment Flows section)
Do you have a reference supporting your assertion that the fund never sells bonds when deleveraging? If true, then they would significantly deviate from their stated asset allocation which I think is 100% equities / 100% bonds, as a percentage of NAV. How would new investors know what they buy into at any give time?
Letting equity index swaps expire is effectively equivalent to selling equities for purposes of asset allocation - it's just terminology / technical mechanics.
If stocks and bonds fall in lockstep like they did so far in 2022, and they only sell equities but no bonds to rebalance their leverage factor, the asset allocation would get seriously skewed. Also, while the volatility decay on the bond side would be eliminated (unless markets fall deep enough so they are forced to sell bonds eventually), the volatility decay on the equities side would be disproportionally higher - they would have to sell a lot of equities in a correlated stock/bond down market, that are not available to participate in the recovery.
You can see for yourself in their latest Holdings Report from end of June: https://www.pimco.com/handlers/displayd ... MC4bb0cUks

The bond holdings comprise 133% of NAV. Which is consistent with the idea that they do everything possible to avoid selling bonds into a bond downturn.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by comeinvest »

CletusCaddy wrote: Sun Oct 09, 2022 8:36 pm
comeinvest wrote: Sun Oct 09, 2022 6:48 pm
CletusCaddy wrote: Sun Oct 09, 2022 1:47 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 1:06 pm I have $10 of bonds and they go to $7. I also borrowed $10 to buy stock futures and they go down in value to $7 as well. Now I still owe $10 but I only have $14 of actual value here, net $4. I have to sell a combination of stock futures and bonds to bring the leverage back down to the correct ratio.
Mechanically, that's not how the fund deleverages.

PSLDX holds its leverage in the form of S&P Total Return swaps. Multiple contracts are held with a ladder of maturities. You can see the full schedule in my screenshot here: viewtopic.php?p=6851015#p6851015

If the fund's NAV declines and deleveraging needs to happen, then the managers simply let a handful of swap contracts expire without renewal. Nothing happens on the bond side. The bonds are not sold, no permanent loss is locked in.

That being said, what will induce the permanent loss you are worried about is fund outflows during market declines. It looks like there was some outflow in Q1 but that seems to have ended: https://www.morningstar.com/funds/xnas/ ... erformance (Investment Flows section)
Do you have a reference supporting your assertion that the fund never sells bonds when deleveraging? If true, then they would significantly deviate from their stated asset allocation which I think is 100% equities / 100% bonds, as a percentage of NAV. How would new investors know what they buy into at any give time?
Letting equity index swaps expire is effectively equivalent to selling equities for purposes of asset allocation - it's just terminology / technical mechanics.
If stocks and bonds fall in lockstep like they did so far in 2022, and they only sell equities but no bonds to rebalance their leverage factor, the asset allocation would get seriously skewed. Also, while the volatility decay on the bond side would be eliminated (unless markets fall deep enough so they are forced to sell bonds eventually), the volatility decay on the equities side would be disproportionally higher - they would have to sell a lot of equities in a correlated stock/bond down market, that are not available to participate in the recovery.
You can see for yourself in their latest Holdings Report from end of June: https://www.pimco.com/handlers/displayd ... MC4bb0cUks

The bond holdings comprise 133% of NAV. Which is consistent with the idea that they do everything possible to avoid selling bonds into a bond downturn.
They don't show the totals per asset class on their balance sheet. I would have a hard time reconciling all their derivatives to determine their total fixed income exposure. Did you account for all the interest rate, corporate bond, etc., derivatives that they seem to have in their portfolio?

I find it hard to believe that they would significantly deviate from their stated investment strategy; not even sure if they could do it without legal risk. They say in their summary prospectus: "... The Fund normally uses S&P 500 Index derivatives instead of S&P 500 Index stocks to attempt to equal or exceed the daily performance of the Indexes. The Fund typically will seek to gain long exposure to the S&P 500 Index in an amount, under normal circumstances, approximately equal to the Fund’s net assets. The value of S&P 500 Index derivatives should closely track changes in the value of the S&P 500 Index. However, S&P 500 Index derivatives may be purchased with a small fraction of the assets that would be needed to purchase the equity securities directly, so that the remainder of the assets may be invested in Fixed Income Instruments. ..."

I think it's pretty clear that they are about 100% invested in equities and 100% in bonds at any given time.

"Which is consistent with the idea that they do everything possible to avoid selling bonds into a bond downturn." - What is your source of information that this is an idea that they entertain? Is this your idea, or PIMCO's idea? - Even if they did entertain this idea, I'm not sure if it would be a good idea. Like I said, if they try to avoid volatility decay (a.k.a. selling low, buying high) on the bonds side, they would dramatically increase volatility decay on the equities side, i.e. they would participate in the equities recovery with much less capital. In short, I wouldn't see the benefit of them changing their asset allocation during correlated downturns, as they would basically bet on a bond market recovery but not on a stock market recovery.

But based on their stated investment strategy in the summary prospectus, I don't think they really do any of that.
Last edited by comeinvest on Sun Oct 09, 2022 10:59 pm, edited 2 times in total.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by comeinvest »

CletusCaddy wrote: Sun Oct 09, 2022 8:36 pm You can see for yourself in their latest Holdings Report from end of June: https://www.pimco.com/handlers/displayd ... MC4bb0cUks

The bond holdings comprise 133% of NAV. Which is consistent with the idea that they do everything possible to avoid selling bonds into a bond downturn.
Thanks for pointing me to their balance sheet b.t.w. I find it interesting that they have about 50% of their bond portfolio in treasuries, and the overwhelming majority of them at the 19 year maturity point of the yield curve. It seems like they try to exploit the 20-year treasury anomaly with a strong conviction.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by comeinvest »

PoorHomieQuan wrote: Sun Oct 09, 2022 6:57 pm
comeinvest wrote: Sun Oct 09, 2022 6:44 pm
CletusCaddy wrote: Sun Oct 09, 2022 12:30 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 11:56 am
CletusCaddy wrote: Sun Oct 09, 2022 9:01 am

If that’s the case, then starting point matters more than anything else. Someone who bought into PSLDX at inception (or even 2016) is still ahead of the S&P 500. No recovery necessary.
According to pv, psldx is slightly behind VOO with a starting point of dec 31 2014.

And for what it's worth, I just tested psldx vs sp500 with DCA, 10k per year since psldx inception, which seems like a more realistic test --- and both profiles are dead even. Let's put aside guessing what the future holds for a moment --- if psldx can't beat VOO then it's definitely not worth the added complexity and volatility.
If you’re talking about expected return, then PSLDX by definition has a higher expected return than the S&P 500, as long as globally diversified long bonds (by my estimate currently 5.5%) minus borrowing cost (by my estimate currently 3.5%) exceeds the expense ratio (currently 0.6%).

If you’re talking about market timing, then I’ll just point out that the last time long bonds had such high yields was 2011, and PSLDX beat the pants off the S&P for the following nine years.

If you’re talking about not being able to stomach the volatility, then yeah, I can’t help you there.
I wouldn't disagree with your premise that PSLDX has probably higher risk-adjusted return in the long run; but I think your math is not quite correct. The excess return is less than the yield differential, because of volatility decay, which is inherent in all leveraged portfolios.
More broadly speaking, what's inherent in leveraged portfolios is path-dependency. Volatility decay is not actually a given --- in a low-volatility environment, you can even come out more ahead than expected.

However it works under the hood, this fund holds both bonds and stocks and uses leverage. In the same way that QQQ could recover to all-time highs before TQQQ does (and the latter may even never happen), PSLDX could permanently lag VOO. YTD for PSLDX is -47%. YTD for VOO is -24%. Assuming we've already seen the bottom (I don't wager this to be very likely), and assuming VOO returns 6% per annum for the next 19 years, PSLDX has to return 8% per annum for the next 19 years to finally break even in comparison. CletusCaddy presents it as a mathematical certainty that the "bond side" will recover but it's obvious that if PSLDX could guarantee beating VOO by 2% for the next 19 years, everyone and their mother would jump on it right now.

This is coming from someone who took the bait and bought some PSLDX before thinking enough about it.
You are correct that path dependency could increase or decrease returns. But I think in the long run and with the actual stock market history (not with simulations), the excess return is *less* than the excess asset performance (i.e. the performance of the assets > 100% of NAV) minus the leverage cost, i.e. path dependency is on average negative ("volatility decay"). Look at Kelly diagrams of leveraged portfolios using actual stock market history: The max excess return that you can achieve is usually slightly above 1% p.a., not more. You can achieve this with leverage ratios of ca. 1.5 - 2.

Regarding the expected returns of PSLDX and how soon they might catch up: It's a slippery slope. I would say any forecast is very difficult and highly sensitive to assumptions. In particular, the terminal results are probably highly dependent on the terminal level of interest rates at the end of your investment horizon. If the global "race to zero" in rates resumes, you will gain most of what you lost in 2022 with the bond portion of the portfolio (minus volatility decay). If interest rates stay elevated at 3-4%, if will take a long time. How long it will take to catch up in comparison to a 100% equity index portfolio, will depend on the term premium (many forecasts say this is negative or zero), on the excess returns from the credit spread of their bond portfolio and active management alpha (minus expense ratio), and on rebalancing bonuses, if any. But it's fair to say it will take a long time, if interest rates stay elevated. The longer your investment horizon however, the more the carry returns will dominate the terminal results vs. the effect of interest rate changes. (Interest rate changes are naturally range bound in models.) So in summary, "patience" (investment horizon) is even more important for this strategy (and almost all other leveraged strategies) than for 100% equities.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

CletusCaddy wrote: Sun Oct 09, 2022 12:43 pm
And how exactly is PSLDX “selling off bonds to cover losses in stocks”? They have both gone down similarly this year. If one goes down more than the other then the internal rebalancing brings them back into balance.
I appreciate the answers already given. I'm not convinced. The stock exposure is mostly S&P500 return swaps, which would have to be paid. It's a swap. You pay me or I pay you. If the swaps mature as a negative value, It seems to me that they'd have to sell assets to pay that. When the return swaps are positive, they mail out the money in a dividend. There's evidently no way they can make that non-taxable.

It's been a while since I read their prospectus in its entirety, but I believe I saw that flagrantly in 2020.

Fundamentally, I see no way to achieve leverage without creating an instrument that allows you to lose more than your money. But that's not why I'm posting this. I'm posting it because I read their holdings report in its entirety in 2020.
This time is the same
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by bgf »

comeinvest wrote: Sun Oct 09, 2022 10:54 pm
CletusCaddy wrote: Sun Oct 09, 2022 8:36 pm
comeinvest wrote: Sun Oct 09, 2022 6:48 pm
CletusCaddy wrote: Sun Oct 09, 2022 1:47 pm
PoorHomieQuan wrote: Sun Oct 09, 2022 1:06 pm I have $10 of bonds and they go to $7. I also borrowed $10 to buy stock futures and they go down in value to $7 as well. Now I still owe $10 but I only have $14 of actual value here, net $4. I have to sell a combination of stock futures and bonds to bring the leverage back down to the correct ratio.
Mechanically, that's not how the fund deleverages.

PSLDX holds its leverage in the form of S&P Total Return swaps. Multiple contracts are held with a ladder of maturities. You can see the full schedule in my screenshot here: viewtopic.php?p=6851015#p6851015

If the fund's NAV declines and deleveraging needs to happen, then the managers simply let a handful of swap contracts expire without renewal. Nothing happens on the bond side. The bonds are not sold, no permanent loss is locked in.

That being said, what will induce the permanent loss you are worried about is fund outflows during market declines. It looks like there was some outflow in Q1 but that seems to have ended: https://www.morningstar.com/funds/xnas/ ... erformance (Investment Flows section)
Do you have a reference supporting your assertion that the fund never sells bonds when deleveraging? If true, then they would significantly deviate from their stated asset allocation which I think is 100% equities / 100% bonds, as a percentage of NAV. How would new investors know what they buy into at any give time?
Letting equity index swaps expire is effectively equivalent to selling equities for purposes of asset allocation - it's just terminology / technical mechanics.
If stocks and bonds fall in lockstep like they did so far in 2022, and they only sell equities but no bonds to rebalance their leverage factor, the asset allocation would get seriously skewed. Also, while the volatility decay on the bond side would be eliminated (unless markets fall deep enough so they are forced to sell bonds eventually), the volatility decay on the equities side would be disproportionally higher - they would have to sell a lot of equities in a correlated stock/bond down market, that are not available to participate in the recovery.
You can see for yourself in their latest Holdings Report from end of June: https://www.pimco.com/handlers/displayd ... MC4bb0cUks

The bond holdings comprise 133% of NAV. Which is consistent with the idea that they do everything possible to avoid selling bonds into a bond downturn.
I find it hard to believe that they would significantly deviate from their stated investment strategy; not even sure if they could do it without legal risk. They say in their summary prospectus: "... The Fund normally uses S&P 500 Index derivatives instead of S&P 500 Index stocks to attempt to equal or exceed the daily performance of the Indexes. The Fund typically will seek to gain long exposure to the S&P 500 Index in an amount, under normal circumstances, approximately equal to the Fund’s net assets. The value of S&P 500 Index derivatives should closely track changes in the value of the S&P 500 Index. However, S&P 500 Index derivatives may be purchased with a small fraction of the assets that would be needed to purchase the equity securities directly, so that the remainder of the assets may be invested in Fixed Income Instruments. ..."
The bold are the important bits. From what I can tell, the fund is using a lot of hedging language to allow itself leeway in these unusual circumstances. how far will they allow it to deviate is anyone's guess, but there is a very important reason that language is in there. ultimately, the goal of the fund is to exceed its benchmarks, and i would imagine compensation of the managers is tied to that. they have to comply with the prospectus, but as you can see, they have more than just a little wiggle room.

at the end of the day though, this is a ~14 year duration bond fund with leveraged stock exposure. we're living through an awful period for this kind of strategy, and its performance is going to suck until rates stabilize and drop.

personally, my only regret with this strategy is that i didnt allow for dollar cost averaging like i do with the rest of my portfolio. its in a 'dead' simple IRA account. maybe i'll convert it to a Roth one day, but even then new money will be quite limited.
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firebirdparts
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

Most recent holdings report on PIMCO's website is from June, but I suppose not much has really changed.

They had (at that time) $228 million negative in short term reverse repurchase agreements, listed under borrowings but also labeled "reverse". So I don't know for sure how to take that, but I'll choose to take it as the cash that they owe when it comes due. You can't see what they agreed to repurchase. If they continue to borrow money, that has allowed them to avoid selling their bonds to some extent, but if they are getting into that debt through repurchase agreements, then they are just kicking the lose-money-on-bonds can down the road, I think, and not with good results. I am not qualified really to comment.

Every S&P500 return swap they had was in the hole at that time, and they also had a bunch of E-mini futures that were negative. As you'd expect. But not big amounts at that time.
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superjames1992
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by superjames1992 »

bgf wrote: Mon Oct 10, 2022 7:34 am
comeinvest wrote: Sun Oct 09, 2022 10:54 pm
CletusCaddy wrote: Sun Oct 09, 2022 8:36 pm
comeinvest wrote: Sun Oct 09, 2022 6:48 pm
CletusCaddy wrote: Sun Oct 09, 2022 1:47 pm

Mechanically, that's not how the fund deleverages.

PSLDX holds its leverage in the form of S&P Total Return swaps. Multiple contracts are held with a ladder of maturities. You can see the full schedule in my screenshot here: viewtopic.php?p=6851015#p6851015

If the fund's NAV declines and deleveraging needs to happen, then the managers simply let a handful of swap contracts expire without renewal. Nothing happens on the bond side. The bonds are not sold, no permanent loss is locked in.

That being said, what will induce the permanent loss you are worried about is fund outflows during market declines. It looks like there was some outflow in Q1 but that seems to have ended: https://www.morningstar.com/funds/xnas/ ... erformance (Investment Flows section)
Do you have a reference supporting your assertion that the fund never sells bonds when deleveraging? If true, then they would significantly deviate from their stated asset allocation which I think is 100% equities / 100% bonds, as a percentage of NAV. How would new investors know what they buy into at any give time?
Letting equity index swaps expire is effectively equivalent to selling equities for purposes of asset allocation - it's just terminology / technical mechanics.
If stocks and bonds fall in lockstep like they did so far in 2022, and they only sell equities but no bonds to rebalance their leverage factor, the asset allocation would get seriously skewed. Also, while the volatility decay on the bond side would be eliminated (unless markets fall deep enough so they are forced to sell bonds eventually), the volatility decay on the equities side would be disproportionally higher - they would have to sell a lot of equities in a correlated stock/bond down market, that are not available to participate in the recovery.
You can see for yourself in their latest Holdings Report from end of June: https://www.pimco.com/handlers/displayd ... MC4bb0cUks

The bond holdings comprise 133% of NAV. Which is consistent with the idea that they do everything possible to avoid selling bonds into a bond downturn.
I find it hard to believe that they would significantly deviate from their stated investment strategy; not even sure if they could do it without legal risk. They say in their summary prospectus: "... The Fund normally uses S&P 500 Index derivatives instead of S&P 500 Index stocks to attempt to equal or exceed the daily performance of the Indexes. The Fund typically will seek to gain long exposure to the S&P 500 Index in an amount, under normal circumstances, approximately equal to the Fund’s net assets. The value of S&P 500 Index derivatives should closely track changes in the value of the S&P 500 Index. However, S&P 500 Index derivatives may be purchased with a small fraction of the assets that would be needed to purchase the equity securities directly, so that the remainder of the assets may be invested in Fixed Income Instruments. ..."
The bold are the important bits. From what I can tell, the fund is using a lot of hedging language to allow itself leeway in these unusual circumstances. how far will they allow it to deviate is anyone's guess, but there is a very important reason that language is in there. ultimately, the goal of the fund is to exceed its benchmarks, and i would imagine compensation of the managers is tied to that. they have to comply with the prospectus, but as you can see, they have more than just a little wiggle room.

at the end of the day though, this is a ~14 year duration bond fund with leveraged stock exposure. we're living through an awful period for this kind of strategy, and its performance is going to suck until rates stabilize and drop.

personally, my only regret with this strategy is that i didnt allow for dollar cost averaging like i do with the rest of my portfolio. its in a 'dead' simple IRA account. maybe i'll convert it to a Roth one day, but even then new money will be quite limited.
Unfortunately, it’s hard to DCA into this fund with the $50 transaction fee (unless it’s a really large account where that amount is trivial)
TXGator
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by TXGator »

Unless there's an afternoon rally - looks like it'll break $4/share today - I don't feel so bad getting out in the 5s since my losses are not any worse than the QQQ now :mrgreen:
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by ChinchillaWhiplash »

TXGator wrote: Thu Oct 13, 2022 8:54 am Unless there's an afternoon rally - looks like it'll break $4/share today - I don't feel so bad getting out in the 5s since my losses are not any worse than the QQQ now :mrgreen:
Markets are out of the red and into the green already! Crazy day of trading for sure :shock:
TXGator
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by TXGator »

ChinchillaWhiplash wrote: Thu Oct 13, 2022 11:08 am
TXGator wrote: Thu Oct 13, 2022 8:54 am Unless there's an afternoon rally - looks like it'll break $4/share today - I don't feel so bad getting out in the 5s since my losses are not any worse than the QQQ now :mrgreen:
Markets are out of the red and into the green already! Crazy day of trading for sure :shock:
Wild day
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by ChinchillaWhiplash »

So what scenarios would keep this fund from producing good returns in the future? Interest rates continuing to go up or even just staying high? Market going down or going sideways for years? Both interest rates rising and stocks going down at the same time like now obviously. Any other ways this gets derailed? Basically what would make this perform worse than just straight up TSM with no chaser? :confused
halivingston
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by halivingston »

I'm a PSDLX bag holder, down 26% since August 2022. I bought $80k of it in Roth IRA.

At this point, I'm wondering if I should cut my losses and move on to VOO, or if I DCA into this every year.

Is there any chance this fund gets liquidated?
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

Plenty of chance. It would be disappointing for me, because I have it in Fido/brokeragelink where I can buy mutual funds only. They offer about 10,000 funds, but zero of them would bounce back when PSLDX bounces back (if that happens).

To some degree I have "ridden it down" but I'm really about back to where I started.

To the question of what could cause it to perform, the secondary benchmark is S&P 500 Index + Bloomberg Long-Term Government/Credit Index - Secured Overnight Financing Rate (SOFR)

So I hope everybody understand how rising interest rates hurt you, as the bonds are simple and you have to reprice those. The S&P500 is going to be repriced for higher interest, but also gets hurt by the QT and efforts by the Fed to slow inflation, cool down the economy. I suppose an inverted yield curve squeezes it a little.

Continued high interest rates don't necessarily do a whole lot to it. Falling interest rates, of course, would send it.
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bgf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by bgf »

firebirdparts wrote: Mon Oct 17, 2022 8:15 am Plenty of chance. It would be disappointing for me, because I have it in Fido/brokeragelink where I can buy mutual funds only. They offer about 10,000 funds, but zero of them would bounce back when PSLDX bounces back (if that happens).

To some degree I have "ridden it down" but I'm really about back to where I started.

To the question of what could cause it to perform, the secondary benchmark is S&P 500 Index + Bloomberg Long-Term Government/Credit Index - Secured Overnight Financing Rate (SOFR)

So I hope everybody understand how rising interest rates hurt you, as the bonds are simple and you have to reprice those. The S&P500 is going to be repriced for higher interest, but also gets hurt by the QT and efforts by the Fed to slow inflation, cool down the economy. I suppose an inverted yield curve squeezes it a little.

Continued high interest rates don't necessarily do a whole lot to it. Falling interest rates, of course, would send it.
yes, and i'd only add that its price reflects not only the interest rate moves that have already occurred but also the market's consensus on interest rates and SP500 earnings into the near future.

the market price is likely to be wrong of course, but which way its wrong we dont know.

fundamentally, we have better yielding bonds and cheaper stocks with higher expected returns, whether and how long it takes to retake its position against the SP500 is, i think, pretty path dependent.
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johnsmithsf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by johnsmithsf »

I think before buying it one needs to understand how these instruments work.

When feds said they are going to increase the rates, obviously it was the time to get out of the long duration bonds. As when rates go up, bonds fall in price. And longer duration bonds fall more.

Feds don't increase the rates without warning you. So whenever the federal government says that rates are going to go up, it is time to get out of long duration bonds and then buy short duration bonds or stay in cash.
And whenever the federal government says that they are pausing the rate hike( may happen in 2023), that probably would be the time to go in to psldx. :beer

I believe Psldx is a good instrument and I'm sure as soon as feds pause the hike in interest rates, it would start beating S&P 500 to a pulp again :dollar
bgf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by bgf »

johnsmithsf wrote: Mon Oct 17, 2022 11:56 pm I think before buying it one needs to understand how these instruments work.

When feds said they are going to increase the rates, obviously it was the time to get out of the long duration bonds. As when rates go up, bonds fall in price. And longer duration bonds fall more.

Feds don't increase the rates without warning you. So whenever the federal government says that rates are going to go up, it is time to get out of long duration bonds and then buy short duration bonds or stay in cash.
And whenever the federal government says that they are pausing the rate hike( may happen in 2023), that probably would be the time to go in to psldx. :beer

I believe Psldx is a good instrument and I'm sure as soon as feds pause the hike in interest rates, it would start beating S&P 500 to a pulp again :dollar
its just that easy huh?
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