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

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

Post by bgf »

johnsmithsf wrote: Sat Nov 19, 2022 9:42 am
jrbdmb wrote: Fri Nov 11, 2022 12:50 pm
johnsmithsf wrote: Tue Oct 18, 2022 7:58 pm
johnsmithsf wrote: Tue Oct 18, 2022 10:35 am
bgf wrote: Tue Oct 18, 2022 8:11 am

its just that easy huh?
If a federal rate hike train is coming at you, thus making the interest rates go up, one should let go of his/her white knuckle grip on the long duration bonds. Otherwise the train of long term bond price crash will hit you hard. Happens every-time when you backtest PSLDX.

It's very simple. When rates go up, bond prices drop...Every 1% rise in rates crashes PSLDX by 7-8% .
You can imagine PSLDX as a combination of S&P 500 + Vanguard Long-Term Bond Index Fund Institutional Shares (VBLLX)

Expected approximate annual PSLDX returns are Returns of S&P 500 + Yield of VBLLX (current SEC yield is 5%) - 8X percentage rise in Federal interest rates.

(or if you want to make it more accurate, use
Expected approximate annual PSLDX returns =Returns of S&P 500 + Yield of VBLLX (current SEC yield is 5%) - 14x percent rise in 20 year Treasury. {It was 2% in Jan 2022, now 4%})

I am all for buy and hold, but keep holding long duration bonds, when Feds are explicitly stating their desire to raise rates, is more like a deer in the headlights behavior :shock: . PSLDX is performing exactly as designed. And it will likely start beating S&P 500 by 4-5% annually as soon as feds stop hiking rates :sharebeer .
The Fed first hiked rates from 0.25% to 0.50% on March 17, 2022. By that time PSLDX had already dropped about 30% from it's peak.

Short-term rates are highly dependent on the Fed. Long term term rates are not - they tend to focus more on the strength of the economy and inflation. Good luck on predicting the month-to-month variation of inflation rates and their effect on long bonds.
https://fred.stlouisfed.org/graph/?g=WzH2

You can see in this plot that as Feds rate/3 month treasury rates go up, 10 year treasury yields usually go up. Rates can go up even when inflation is out of control

Point is,
- :idea: if the Feds are warning about rate hike, don't hold long term bonds.
- :idea: if inflation is out of control, don't hold long term bonds.

At other times PSLDX and long term bonds are okay

It's that simple. :sharebeer
30 year has dropped like 75 bps (or close, I haven’t checked it) in a few weeks, and the fed hasn’t signaled any change.
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bgf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by bgf »

PoorHomieQuan wrote: Wed Nov 23, 2022 11:37 pm
bgf wrote: Fri Nov 11, 2022 6:17 am
I say this mostly because I think many observers believe these won’t make back their ground for 20 years, and I just don’t see that as realistic having watched these moves on a daily basis all year.
Given the difference in performance this year between psldx and VOO, everyone on the planet should hop into psldx now if it really is guaranteed to make up the difference in short order. That said the present outlook for psldx seems much better than a couple months ago given that the main bugbear has switched from inflation (where bonds suffer) to recession (where bonds do well).
I do wish I had funds to have DCA’d into PSLDX like I did with my HFEA version in my Roth. There is no guarantee that PSLDX will recover against its benchmark in any particular period of time. That it path dependent. My point was just that watching these moves on a daily basis and seeing how much ground is made up in just a few weeks, 20 years just seems like an outlier outcome.

I’ve just regained 15% against my benchmark (VT) in like a week or two. And long term rates can fall much further.
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firebirdparts
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

This would have been a good year for that.
This time is the same
bgf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by bgf »

PSLDX up over 12% in November vs. less than 6% for SP500. still deep in the hole, but its nice to see it beginning to climb out rather than continuing to dig deeper.

long term rates are down substantially again today, so starting December off on the right foot as well!
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DubiousInvestor
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by DubiousInvestor »

Wish I had money to DCA, but it's in my ROTH and maxed out this year and don't want to sell anything else to put into it, maybe when 2023 opens
bgf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by bgf »

DubiousInvestor wrote: Thu Dec 01, 2022 12:42 pm Wish I had money to DCA, but it's in my ROTH and maxed out this year and don't want to sell anything else to put into it, maybe when 2023 opens
im in a similar situation. all of my PSLDX is held in an old simple ira that no longer receives contributions. assuming PSLDX outperforms my portfolio, once my leverage ratio exceeds my planned range I'll sell some PSLDX for an unlevered fund, probably VT. then, next time it craters, I'll have funds in that account to rebalance back into it. i plan on holding PSLDX for at least the duration of its bond holdings, so i imagine i'll have the opportunity to do so at some point.
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kevinf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by kevinf »

The updated prospectus with the new benchmark was released recently, and the fund tracks very closely to the benchmarks PIMCO uses.

Prospectus *** Semi-Annual Report

Code: Select all

Institutional Class Return Before Taxes 
25.73% (1 Year)
25.57% (5 Years)
22.14% (10 Years

Code: Select all

S&P 500 Index + Bloomberg Long-Term Government/Credit Index - ICE BofA SOFR Overnight Rate Index
(reflects no deductions for fees, expenses or taxes)
25.55% (1 Year)
NO DATA (5 Years)
NO DATA (10 Years)

Code: Select all

S&P 500 Index + Bloomberg Long-Term Government/Credit Index - 3 Month LIBOR
(reflects no deductions for fees, expenses or taxes)
25.36% (1 Year)
25.94% (5 Years)
22.56% (10 Years

Code: Select all

S&P 500 Index
(reflects no deductions for fees, expenses or taxes)
28.71% (1 Year)
18.47% (5 Years)
16.55% (10 Years)
manlymatt83
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by manlymatt83 »

Can you get PSLDX at Merrill Edge? If so, what is the fee?
bgf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by bgf »

manlymatt83 wrote: Sun Dec 04, 2022 6:41 pm Can you get PSLDX at Merrill Edge? If so, what is the fee?
no, which is annoying. i hold it at schwab.
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manlymatt83
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by manlymatt83 »

bgf wrote: Mon Dec 05, 2022 7:27 am
manlymatt83 wrote: Sun Dec 04, 2022 6:41 pm Can you get PSLDX at Merrill Edge? If so, what is the fee?
no, which is annoying. i hold it at schwab.
Oy, not even in a tax advantaged account? That’s annoying.
garlandwhizzer
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by garlandwhizzer »

If we return to the macroeconomic and market conditions in which PSLDX massively outperformed (2013 - 2021--massive bull market in long duration Treasuries due to 38 years of ever lower rates and inflation, and mega-cap growth US equity dominating returns of INTL, size and value) PSLDX will again be primed for perfect risk adjusted performance. PSLDX will concentrate only in winning assets (LTT + US LC) and avoid of losers (INTL, size and value equity as well as shorter duration bonds). Then it will magnify those returns with leverage which it did from 2013 - 2021 when it basically tripled market returns versus comparable market US stock/bond portfolios. It backtested so well over that period that MOM investors piled in and its long term winning assets were valuation inflated to bubble levels. Then in 2022, it tanked big time with the unexpected and rapid re-emergence of high inflation and a shift in equity from overvalued US LCG to SCV. In addition there was af unfolding disaster in LTT that devastated principal values. The massively big winners suddenly became the big losers. PSLDX lost about half its value in 7 months in 2022 and even after a recent powerful bounce off the bottom it is still down 36.6% YTD. The PSLDX replay is a classic history of the inflation of a bubble its subsequent collapse.

How will it do in the future? That depends massively on macroeconomics--the rate of inflation, its direction and the speed of its change, FED interest rate policy, whether we go into a brief mild recession or something worse, whether inflation turns out to be much harder to get rid of than expected, whether we go into the nightmare of multi-year persistent stagflation, etc.. If you know how all that will play out right now, up front, you can take advantage of it with a leveraged play on future winners and avoidance of future losers. Personally, I don't know with reliability any of those future outcomes now. I also strongly believe that past results do not reliably forecast future returns, often just the opposite especially to extreme outliers one way or the other. My crystal ball is cloudy and I know it. I am in retirement, hence I choose a un-leveraged widely diversified portfolio in equity and bonds, hopefully ready for whatever the future turns out to be. I do not need outperformance, only to avoid disaster. Aiming 100% of the portfolio to expected winners, avoiding expected losers, and then adding leverage increases short and intermediate term volatility. Volatility can go in either direction. Results can turn out to be anywhere from outstanding (2013 - 2021) to deplorable (2022). If you like betting it may be your cup of tea now.

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

Post by johnsmithsf »

What is the minimum purchase requirements for PSLDX at TD Ameritrade?

I only see 1,000,000 on this link

https://research.tdameritrade.com/grid/ ... mbol=PSLDX
newbie001
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by newbie001 »

johnsmithsf wrote: Tue Dec 06, 2022 6:36 pm What is the minimum purchase requirements for PSLDX at TD Ameritrade?

I only see 1,000,000 on this link

https://research.tdameritrade.com/grid/ ... mbol=PSLDX
I have seen reviews of PSLDX on youtube that say no minimum for TD Ameritrade. I called to be sure a few days ago; the rep told me that there is no minimum, only a $50 transaction fee. I hope that's right because I am planning to open a TD Ameritrade account for PSLDX purposes. Your link makes me wonder if the rep was wrong...
swehrman
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by swehrman »

newbie001 wrote: Tue Dec 06, 2022 6:57 pm I have seen reviews of PSLDX on youtube that say no minimum for TD Ameritrade. I called to be sure a few days ago; the rep told me that there is no minimum, only a $50 transaction fee. I hope that's right because I am planning to open a TD Ameritrade account for PSLDX purposes. Your link makes me wonder if the rep was wrong...
I have bought PSLDX at TD Ameritrade, and the $50 transaction fee and no minimum is correct.
bgf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by bgf »

the 30 year yield has now dropped nearly 100 basis points from its October intraday high... fed still raising rates.

....

one can't simply follow the fed funds rate when trying to get ahead of the 30 year.
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newbie001
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by newbie001 »

swehrman wrote: Tue Dec 06, 2022 8:55 pm
newbie001 wrote: Tue Dec 06, 2022 6:57 pm I have seen reviews of PSLDX on youtube that say no minimum for TD Ameritrade. I called to be sure a few days ago; the rep told me that there is no minimum, only a $50 transaction fee. I hope that's right because I am planning to open a TD Ameritrade account for PSLDX purposes. Your link makes me wonder if the rep was wrong...
I have bought PSLDX at TD Ameritrade, and the $50 transaction fee and no minimum is correct.
Thanks! That's good to know.
getjiggy
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by getjiggy »

When is the next capital gains payment for PSLDX? I remember good payout around Dec 10th last year.
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kevinf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by kevinf »

The prior December payout was on the 28th for 0.32859.

Quarterly Investment Report
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firebirdparts
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

We may not see one. The S&P return contracts coming due might be negative. Should be negative, I think. I could look again, but it doesn't really matter (to me).
This time is the same
pshonore
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by pshonore »

newbie001 wrote: Wed Dec 07, 2022 11:48 am
swehrman wrote: Tue Dec 06, 2022 8:55 pm
newbie001 wrote: Tue Dec 06, 2022 6:57 pm I have seen reviews of PSLDX on youtube that say no minimum for TD Ameritrade. I called to be sure a few days ago; the rep told me that there is no minimum, only a $50 transaction fee. I hope that's right because I am planning to open a TD Ameritrade account for PSLDX purposes. Your link makes me wonder if the rep was wrong...
I have bought PSLDX at TD Ameritrade, and the $50 transaction fee and no minimum is correct.
Thanks! That's good to know.
Haven't bought recently, but the last time I did (early 2021) at Etrade there was no minimum and the fee was $15
manlymatt83
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by manlymatt83 »

E*Trade eliminated all commissions on mutual funds today:

https://www.barrons.com/advisor/article ... 1670941336

I can confirm PSLDX is $0.
async
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by async »

kevinf wrote: Tue Dec 13, 2022 2:44 am The prior December payout was on the 28th for 0.32859.

Quarterly Investment Report
That was the Q4 Dividend. The annual Capital Gains distribution was on December 8, 2021.

Available here on the chart under Summary -> Dividends & Distributions.
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firebirdparts
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

On a lighter note, we should be up about 2% tonight.
This time is the same
getjiggy
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by getjiggy »

async wrote: Tue Dec 13, 2022 11:31 am
kevinf wrote: Tue Dec 13, 2022 2:44 am The prior December payout was on the 28th for 0.32859.

Quarterly Investment Report
That was the Q4 Dividend. The annual Capital Gains distribution was on December 8, 2021.

Available here on the chart under Summary -> Dividends & Distributions.
Right, that’s what I see from last year. There was a large payout aroun Dec 9th and again end of Dec (which matches the Quarterly schedule)
DMoogle
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by DMoogle »

manlymatt83 wrote: Tue Dec 13, 2022 10:32 am E*Trade eliminated all commissions on mutual funds today:

https://www.barrons.com/advisor/article ... 1670941336

I can confirm PSLDX is $0.
This is great, especially combined with their decreased ER. My IRA is with ETrade. Been using futures for leverage, but they don't allow futures rollovers; buy/sell needs to be separate trades, which doubles the cost. I may ditch that and just PSLDX and chill.
Morik
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by Morik »

I see references earlier in the thread to the duration of PSLDX being ~16 years. Looking at the fund website now, it appears this has shortened significantly:

Image

Is that the right place to look? Is there an easy way to get the blended duration of all their holdings? (I.e., without having to go through their holdings report and figure out the weights for US gov vs investment grade, etc, to multiply those weights by the durations listed in that screenshot?)
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by CletusCaddy »

In just one year this fund lost all of its outperformance against the S&P for the previous six years.

Best of luck to all still holding on.
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kevinf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by kevinf »

At worst, we've held onto a substantially similar fund to VOO for the interim thus far. Rates have been rising, which would seem to indicate a promising future for a bond-heavy fund like PSLDX if one's investment horizon isn't the day after tomorrow. I think it's a little amusing watching some members of this forum enter PSDLX and NTSX threads to doomsay. They are, at worst, moderately juiced Bogleheads funds (1.5x and 2x), so if this forum believes in the fundamentals of broad market stock + bond funds then there really isn't a lot to get critical about.

10-year lookback VOO vs PSLDX in PortfolioVisualizer
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OuterBanks
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by OuterBanks »

Any chance of Vanguard removing the $20 buying fee for PSLDX this year since ETrade has removed their fee?
bgf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by bgf »

kevinf wrote: Sun Jan 01, 2023 2:35 pm At worst, we've held onto a substantially similar fund to VOO for the interim thus far. Rates have been rising, which would seem to indicate a promising future for a bond-heavy fund like PSLDX if one's investment horizon isn't the day after tomorrow. I think it's a little amusing watching some members of this forum enter PSDLX and NTSX threads to doomsay. They are, at worst, moderately juiced Bogleheads funds (1.5x and 2x), so if this forum believes in the fundamentals of broad market stock + bond funds then there really isn't a lot to get critical about.

10-year lookback VOO vs PSLDX in PortfolioVisualizer
this year there have been so many of these, almost gloating, type posts. hopefully they just kind of peter out at some point. probably too much to ask.
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international001
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by international001 »

kevinf wrote: Sun Jan 01, 2023 2:35 pm At worst, we've held onto a substantially similar fund to VOO for the interim thus far. Rates have been rising, which would seem to indicate a promising future for a bond-heavy fund like PSLDX if one's investment horizon isn't the day after tomorrow. I think it's a little amusing watching some members of this forum enter PSDLX and NTSX threads to doomsay. They are, at worst, moderately juiced Bogleheads funds (1.5x and 2x), so if this forum believes in the fundamentals of broad market stock + bond funds then there really isn't a lot to get critical about.

10-year lookback VOO vs PSLDX in PortfolioVisualizer
For just a decade, you shouldn't add contributions in your comparison. You should get a longer period:

https://www.portfoliovisualizer.com/bac ... on4_3=-100
Harmanic
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by Harmanic »

For a longer period, both SPY and PSLDX get the same returns.
https://www.portfoliovisualizer.com/bac ... ion2_2=100
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PoorHomieQuan
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by PoorHomieQuan »

kevinf wrote: Sun Jan 01, 2023 2:35 pm They are, at worst, moderately juiced Bogleheads funds (1.5x and 2x), so if this forum believes in the fundamentals of broad market stock + bond funds then there really isn't a lot to get critical about.
Oh, I dunno. How about leverage?
Warren Buffet wrote:If you don't have leverage, you don't get in trouble. That's the only way a smart person can go broke, basically.
Additionally, PSLDX is not well diversified in the types of stocks or bonds it holds. It's not pure indexing or low cost.

Plenty a Boglehead can find here to complain about.
CletusCaddy wrote: Sun Jan 01, 2023 2:00 pm In just one year this fund lost all of its outperformance against the S&P for the previous six years.
It's been worse if you were DCA'ing into it.
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kevinf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by kevinf »

Why are you in a PSLDX thread if you don't like the idea of using leverage? PSLDX is 2x leverage on a large-cap S&P500 equivalent derivatives and broad market long-term bond and bond-like instruments, NTSX is Treasury futures and large cap stocks. PSLDX and NTSX are good funds for people on this board that like the ideas behind 60/40 but have more appetite for risk. Nobody in this thread is advocating going all in leveraging TSLA and Russian bonds.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by drzzzzz »

kevinf wrote: Mon Jan 02, 2023 6:14 pm Why are you in a PSLDX thread if you don't like the idea of using leverage? PSLDX is 2x leverage on a large-cap S&P500 equivalent derivatives and broad market long-term bond and bond-like instruments, NTSX is Treasury futures and large cap stocks. PSLDX and NTSX are good funds for people on this board that like the ideas behind 60/40 but have more appetite for risk. Nobody in this thread is advocating going all in leveraging TSLA and Russian bonds.
What a great comment !!
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

Well, to be fair, the thread title is "Why not 100% PSLDX?" It's the most on-topic response ever.
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kevinf
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by kevinf »

I'd consider the title to be more of a rhetorical question than a literal one at this point in the thread, but reasonable people could disagree. The posts I was replying to also seem to hint that it should be 0% PSLDX which is clearly not the direction this thread has taken in the last 1700 posts... but reasonable people could disagree.

Mainly, I'm just tired of that particular type of posts which doesn't really ADD anything to the topic (on this forum and others)... "the fund is down for the year, good luck everyone, you've made terrible life choices!" and would be considered 💩-posting on most moderated boards. It's mostly just low-effort gloating. Thankfully there hasn't been any actual bad-faith posting that I've seen yet, but those types of posts easily transitions into bad-faith posts if they're permitted and I've seen a lot of threads and even entire forums go downhill fast when that mentality takes over.

Because here we are, starting a string of meta-posts about sanctimonious replies in the thread instead of discussing the fund itself.
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by international001 »

Harmanic wrote: Mon Jan 02, 2023 3:22 pm For a longer period, both SPY and PSLDX get the same returns.
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Huh?

Please, see my previous response
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imak
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by imak »

Considering the recent drawdown in 2022, the intuition is that expected returns are higher (than S&P 500) going forward, but how would one construct an expected return estimate for PSLDX?

Referring recently published Vanguard Economic & Market Outlook for 2023:
https://institutional.vanguard.com/cont ... lation.pdf

Listing down individual component's expected returns from the report (nominal):
Investment grade bonds: 4.8%-5.8%
Treasury bonds: 3.7%-4.3%
US Large cap: 4.7%-6.7%

There is some calculation involved regarding futures/cost-of-borrowing for leveraged funds which I am not aware of, probably this equation does not apply to leveraged funds using futures?
Expected return = risk free premium + Leverage * (expected market return - risk free premium)

What could be a reasonable back-of-the-envelope expected return estimate for PSLDX in this case?
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Dry-Drink
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by Dry-Drink »

imak wrote: Tue Jan 03, 2023 3:53 pm Considering the recent drawdown in 2022, the intuition is that expected returns are higher (than S&P 500) going forward, but how would one construct an expected return estimate for PSLDX?

Referring recently published Vanguard Economic & Market Outlook for 2023:
https://institutional.vanguard.com/cont ... lation.pdf

Listing down individual component's expected returns from the report (nominal):
Investment grade bonds: 4.8%-5.8%
Treasury bonds: 3.7%-4.3%
US Large cap: 4.7%-6.7%

There is some calculation involved regarding futures/cost-of-borrowing for leveraged funds which I am not aware of, probably this equation does not apply to leveraged funds using futures?
Expected return = risk free premium + Leverage * (expected market return - risk free premium)

What could be a reasonable back-of-the-envelope expected return estimate for PSLDX in this case?
Here's how I'd go about it.
Recall that Vanguard provides annualized (CAGR) returns, not average returns. With that in mind, I'd solve it with the same equations for efficient frontiers:

US large cap vol = 17.1%
US large cap mean returns = CAGR + vol^2/2 = 5.7% + 17.1%^2/2= 7.2%
T bonds vol = 5.8%
T Bonds mean returns = 4.2% + 5.8%^2/2 = 4.4%
IG Bonds vol = (wasn't provided, so I'll just assume somewhere between T Bonds and HY) 8%
IG Bonds mean returns = 5.3% + 8%^2/2 = 5.6%
Stk-T Bond correlation = (wasn't provided, so I'll just assume 0) 0
Stk-IG Bond correlation = 0.22
T Bond - IG correlation (wasn't provided but should be high, I'm assuming 0.8) 0.8
CASH mean returns = 3.9%

Not sure exact portfolio breakdown of PSLDX but looking at balance sheet, looks like it should be about 100% LC stk, 50% T Bond, 50% IG Bonds, -100% cash.

A portfolio with those weight has a CAGR of 6.5%, with vol of 19.12%, before fees. After fees, CAGR is closer to 5.9%. That assumes you borrow at the risk-free rate, which PSLDX doesn't, so I'd expect somewhat less than 5.9%. So basically very comparable to investing in USA large caps.

Which makes sense, Vanguard doesn't expect T Bonds and IG Bonds to return much more than cash so whatever edge you get from leverage is mostly consumed by the 0.6% fee.
moontower
Posts: 46
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Re: Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Post by moontower »

that's only because SPY dropped 25% in last 12 months - rare moment by definition. Over time PSLDX beats SPY by at last 200 basis points consistently...maybe less so now that leveraged Tbills/futures are more expensive given higher rates....?
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whodidntante
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Location: outside the echo chamber

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

Post by whodidntante »

This fund should outperform large-cap equities if term and credit premia exist and are sufficient to overcome the fund's expenses + the rate above the RFR on those swaps.

Something about volatility dampening, too. But if you believe all those benefits are offered by the fund, then why not 120% PSLDX? :twisted:
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imak
Posts: 212
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Location: Austin, TX

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

Post by imak »

Dry-Drink wrote: Tue Jan 03, 2023 5:06 pm
imak wrote: Tue Jan 03, 2023 3:53 pm Considering the recent drawdown in 2022, the intuition is that expected returns are higher (than S&P 500) going forward, but how would one construct an expected return estimate for PSLDX?

Referring recently published Vanguard Economic & Market Outlook for 2023:
https://institutional.vanguard.com/cont ... lation.pdf

Listing down individual component's expected returns from the report (nominal):
Investment grade bonds: 4.8%-5.8%
Treasury bonds: 3.7%-4.3%
US Large cap: 4.7%-6.7%

There is some calculation involved regarding futures/cost-of-borrowing for leveraged funds which I am not aware of, probably this equation does not apply to leveraged funds using futures?
Expected return = risk free premium + Leverage * (expected market return - risk free premium)

What could be a reasonable back-of-the-envelope expected return estimate for PSLDX in this case?
Here's how I'd go about it.
Recall that Vanguard provides annualized (CAGR) returns, not average returns. With that in mind, I'd solve it with the same equations for efficient frontiers:

US large cap vol = 17.1%
US large cap mean returns = CAGR + vol^2/2 = 5.7% + 17.1%^2/2= 7.2%
T bonds vol = 5.8%
T Bonds mean returns = 4.2% + 5.8%^2/2 = 4.4%
IG Bonds vol = (wasn't provided, so I'll just assume somewhere between T Bonds and HY) 8%
IG Bonds mean returns = 5.3% + 8%^2/2 = 5.6%
Stk-T Bond correlation = (wasn't provided, so I'll just assume 0) 0
Stk-IG Bond correlation = 0.22
T Bond - IG correlation (wasn't provided but should be high, I'm assuming 0.8) 0.8
CASH mean returns = 3.9%

Not sure exact portfolio breakdown of PSLDX but looking at balance sheet, looks like it should be about 100% LC stk, 50% T Bond, 50% IG Bonds, -100% cash.

A portfolio with those weight has a CAGR of 6.5%, with vol of 19.12%, before fees. After fees, CAGR is closer to 5.9%. That assumes you borrow at the risk-free rate, which PSLDX doesn't, so I'd expect somewhat less than 5.9%. So basically very comparable to investing in USA large caps.

Which makes sense, Vanguard doesn't expect T Bonds and IG Bonds to return much more than cash so whatever edge you get from leverage is mostly consumed by the 0.6% fee.
Very helpful, Thank you!
"Take a simple idea and take it seriously" ~ Charlie Munger
international001
Posts: 2748
Joined: Thu Feb 15, 2018 6:31 pm

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

Post by international001 »

Dry-Drink wrote: Tue Jan 03, 2023 5:06 pm
imak wrote: Tue Jan 03, 2023 3:53 pm Considering the recent drawdown in 2022, the intuition is that expected returns are higher (than S&P 500) going forward, but how would one construct an expected return estimate for PSLDX?

Referring recently published Vanguard Economic & Market Outlook for 2023:
https://institutional.vanguard.com/cont ... lation.pdf

Listing down individual component's expected returns from the report (nominal):
Investment grade bonds: 4.8%-5.8%
Treasury bonds: 3.7%-4.3%
US Large cap: 4.7%-6.7%

There is some calculation involved regarding futures/cost-of-borrowing for leveraged funds which I am not aware of, probably this equation does not apply to leveraged funds using futures?
Expected return = risk free premium + Leverage * (expected market return - risk free premium)

What could be a reasonable back-of-the-envelope expected return estimate for PSLDX in this case?
Here's how I'd go about it.
Recall that Vanguard provides annualized (CAGR) returns, not average returns. With that in mind, I'd solve it with the same equations for efficient frontiers:

US large cap vol = 17.1%
US large cap mean returns = CAGR + vol^2/2 = 5.7% + 17.1%^2/2= 7.2%
T bonds vol = 5.8%
T Bonds mean returns = 4.2% + 5.8%^2/2 = 4.4%
IG Bonds vol = (wasn't provided, so I'll just assume somewhere between T Bonds and HY) 8%
IG Bonds mean returns = 5.3% + 8%^2/2 = 5.6%
Stk-T Bond correlation = (wasn't provided, so I'll just assume 0) 0
Stk-IG Bond correlation = 0.22
T Bond - IG correlation (wasn't provided but should be high, I'm assuming 0.8) 0.8
CASH mean returns = 3.9%

Not sure exact portfolio breakdown of PSLDX but looking at balance sheet, looks like it should be about 100% LC stk, 50% T Bond, 50% IG Bonds, -100% cash.

A portfolio with those weight has a CAGR of 6.5%, with vol of 19.12%, before fees. After fees, CAGR is closer to 5.9%. That assumes you borrow at the risk-free rate, which PSLDX doesn't, so I'd expect somewhat less than 5.9%. So basically very comparable to investing in USA large caps.

Which makes sense, Vanguard doesn't expect T Bonds and IG Bonds to return much more than cash so whatever edge you get from leverage is mostly consumed by the 0.6% fee.
Can you explain how you did the calculations for the overall portfolio?

Also, why you assume IT bonds CAGR = 4.4%. Shouldn't it be (3.7%+4.3%)/2
Dry-Drink
Posts: 530
Joined: Fri Jan 14, 2022 9:50 am

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

Post by Dry-Drink »

international001 wrote: Fri Jan 06, 2023 4:57 am
Dry-Drink wrote: Tue Jan 03, 2023 5:06 pm
imak wrote: Tue Jan 03, 2023 3:53 pm Considering the recent drawdown in 2022, the intuition is that expected returns are higher (than S&P 500) going forward, but how would one construct an expected return estimate for PSLDX?

Referring recently published Vanguard Economic & Market Outlook for 2023:
https://institutional.vanguard.com/cont ... lation.pdf

Listing down individual component's expected returns from the report (nominal):
Investment grade bonds: 4.8%-5.8%
Treasury bonds: 3.7%-4.3%
US Large cap: 4.7%-6.7%

There is some calculation involved regarding futures/cost-of-borrowing for leveraged funds which I am not aware of, probably this equation does not apply to leveraged funds using futures?
Expected return = risk free premium + Leverage * (expected market return - risk free premium)

What could be a reasonable back-of-the-envelope expected return estimate for PSLDX in this case?
Here's how I'd go about it.
Recall that Vanguard provides annualized (CAGR) returns, not average returns. With that in mind, I'd solve it with the same equations for efficient frontiers:

US large cap vol = 17.1%
US large cap mean returns = CAGR + vol^2/2 = 5.7% + 17.1%^2/2= 7.2%
T bonds vol = 5.8%
T Bonds mean returns = 4.2% + 5.8%^2/2 = 4.4%
IG Bonds vol = (wasn't provided, so I'll just assume somewhere between T Bonds and HY) 8%
IG Bonds mean returns = 5.3% + 8%^2/2 = 5.6%
Stk-T Bond correlation = (wasn't provided, so I'll just assume 0) 0
Stk-IG Bond correlation = 0.22
T Bond - IG correlation (wasn't provided but should be high, I'm assuming 0.8) 0.8
CASH mean returns = 3.9%

Not sure exact portfolio breakdown of PSLDX but looking at balance sheet, looks like it should be about 100% LC stk, 50% T Bond, 50% IG Bonds, -100% cash.

A portfolio with those weight has a CAGR of 6.5%, with vol of 19.12%, before fees. After fees, CAGR is closer to 5.9%. That assumes you borrow at the risk-free rate, which PSLDX doesn't, so I'd expect somewhat less than 5.9%. So basically very comparable to investing in USA large caps.

Which makes sense, Vanguard doesn't expect T Bonds and IG Bonds to return much more than cash so whatever edge you get from leverage is mostly consumed by the 0.6% fee.
Can you explain how you did the calculations for the overall portfolio?

Also, why you assume IT bonds CAGR = 4.4%. Shouldn't it be (3.7%+4.3%)/2
The average return of the portfolio is just the weighted average return of its constituents. The volatility is the hard one to calculate, you need to use the Modern Portfolio Theory matrix equations to solve it. Once you have vol and mean returns, you can compute CAGR. Here's a website showing those equations but there's many others:
https://raniyer07.medium.com/modern-por ... 3444327a59

There might be calculators online for you to use.

I used the 50th percentile returns Vanguard quotes on page 41. That is 4.2% CAGR. So 4.4% average return. If instead of 4.2% CAGR, you want to assume 4% CAGR, then portfolio return will drop from 5.9% to around 5.8%.
bgf
Posts: 2085
Joined: Fri Nov 10, 2017 8:35 am

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

Post by bgf »

Dry-Drink wrote: Fri Jan 06, 2023 10:29 am
international001 wrote: Fri Jan 06, 2023 4:57 am
Dry-Drink wrote: Tue Jan 03, 2023 5:06 pm
imak wrote: Tue Jan 03, 2023 3:53 pm Considering the recent drawdown in 2022, the intuition is that expected returns are higher (than S&P 500) going forward, but how would one construct an expected return estimate for PSLDX?

Referring recently published Vanguard Economic & Market Outlook for 2023:
https://institutional.vanguard.com/cont ... lation.pdf

Listing down individual component's expected returns from the report (nominal):
Investment grade bonds: 4.8%-5.8%
Treasury bonds: 3.7%-4.3%
US Large cap: 4.7%-6.7%

There is some calculation involved regarding futures/cost-of-borrowing for leveraged funds which I am not aware of, probably this equation does not apply to leveraged funds using futures?
Expected return = risk free premium + Leverage * (expected market return - risk free premium)

What could be a reasonable back-of-the-envelope expected return estimate for PSLDX in this case?
Here's how I'd go about it.
Recall that Vanguard provides annualized (CAGR) returns, not average returns. With that in mind, I'd solve it with the same equations for efficient frontiers:

US large cap vol = 17.1%
US large cap mean returns = CAGR + vol^2/2 = 5.7% + 17.1%^2/2= 7.2%
T bonds vol = 5.8%
T Bonds mean returns = 4.2% + 5.8%^2/2 = 4.4%
IG Bonds vol = (wasn't provided, so I'll just assume somewhere between T Bonds and HY) 8%
IG Bonds mean returns = 5.3% + 8%^2/2 = 5.6%
Stk-T Bond correlation = (wasn't provided, so I'll just assume 0) 0
Stk-IG Bond correlation = 0.22
T Bond - IG correlation (wasn't provided but should be high, I'm assuming 0.8) 0.8
CASH mean returns = 3.9%

Not sure exact portfolio breakdown of PSLDX but looking at balance sheet, looks like it should be about 100% LC stk, 50% T Bond, 50% IG Bonds, -100% cash.

A portfolio with those weight has a CAGR of 6.5%, with vol of 19.12%, before fees. After fees, CAGR is closer to 5.9%. That assumes you borrow at the risk-free rate, which PSLDX doesn't, so I'd expect somewhat less than 5.9%. So basically very comparable to investing in USA large caps.

Which makes sense, Vanguard doesn't expect T Bonds and IG Bonds to return much more than cash so whatever edge you get from leverage is mostly consumed by the 0.6% fee.
Can you explain how you did the calculations for the overall portfolio?

Also, why you assume IT bonds CAGR = 4.4%. Shouldn't it be (3.7%+4.3%)/2
The average return of the portfolio is just the weighted average return of its constituents. The volatility is the hard one to calculate, you need to use the Modern Portfolio Theory matrix equations to solve it. Once you have vol and mean returns, you can compute CAGR. Here's a website showing those equations but there's many others:
https://raniyer07.medium.com/modern-por ... 3444327a59

There might be calculators online for you to use.

I used the 50th percentile returns Vanguard quotes on page 41. That is 4.2% CAGR. So 4.4% average return. If instead of 4.2% CAGR, you want to assume 4% CAGR, then portfolio return will drop from 5.9% to around 5.8%.
apart from the just inherent futility of this entire calculation, you have the additional problem of rebalancing.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
CletusCaddy
Posts: 2678
Joined: Sun Sep 12, 2021 4:23 am

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

Post by CletusCaddy »

Looks like we’re back in business baby!
keith6014
Posts: 697
Joined: Thu Jan 02, 2014 10:58 pm

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

Post by keith6014 »

whodidntante wrote: Tue Jan 03, 2023 6:21 pm This fund should outperform large-cap equities if term and credit premia exist and are sufficient to overcome the fund's expenses + the rate above the RFR on those swaps.

Something about volatility dampening, too. But if you believe all those benefits are offered by the fund, then why not 120% PSLDX? :twisted:
Does PIMCO have a 120% PSLDX?? I couldnt find it.
Dry-Drink
Posts: 530
Joined: Fri Jan 14, 2022 9:50 am

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

Post by Dry-Drink »

bgf wrote: Fri Jan 06, 2023 12:07 pm
Dry-Drink wrote: Fri Jan 06, 2023 10:29 am
international001 wrote: Fri Jan 06, 2023 4:57 am
Dry-Drink wrote: Tue Jan 03, 2023 5:06 pm
imak wrote: Tue Jan 03, 2023 3:53 pm Considering the recent drawdown in 2022, the intuition is that expected returns are higher (than S&P 500) going forward, but how would one construct an expected return estimate for PSLDX?

Referring recently published Vanguard Economic & Market Outlook for 2023:
https://institutional.vanguard.com/cont ... lation.pdf

Listing down individual component's expected returns from the report (nominal):
Investment grade bonds: 4.8%-5.8%
Treasury bonds: 3.7%-4.3%
US Large cap: 4.7%-6.7%

There is some calculation involved regarding futures/cost-of-borrowing for leveraged funds which I am not aware of, probably this equation does not apply to leveraged funds using futures?
Expected return = risk free premium + Leverage * (expected market return - risk free premium)

What could be a reasonable back-of-the-envelope expected return estimate for PSLDX in this case?
Here's how I'd go about it.
Recall that Vanguard provides annualized (CAGR) returns, not average returns. With that in mind, I'd solve it with the same equations for efficient frontiers:

US large cap vol = 17.1%
US large cap mean returns = CAGR + vol^2/2 = 5.7% + 17.1%^2/2= 7.2%
T bonds vol = 5.8%
T Bonds mean returns = 4.2% + 5.8%^2/2 = 4.4%
IG Bonds vol = (wasn't provided, so I'll just assume somewhere between T Bonds and HY) 8%
IG Bonds mean returns = 5.3% + 8%^2/2 = 5.6%
Stk-T Bond correlation = (wasn't provided, so I'll just assume 0) 0
Stk-IG Bond correlation = 0.22
T Bond - IG correlation (wasn't provided but should be high, I'm assuming 0.8) 0.8
CASH mean returns = 3.9%

Not sure exact portfolio breakdown of PSLDX but looking at balance sheet, looks like it should be about 100% LC stk, 50% T Bond, 50% IG Bonds, -100% cash.

A portfolio with those weight has a CAGR of 6.5%, with vol of 19.12%, before fees. After fees, CAGR is closer to 5.9%. That assumes you borrow at the risk-free rate, which PSLDX doesn't, so I'd expect somewhat less than 5.9%. So basically very comparable to investing in USA large caps.

Which makes sense, Vanguard doesn't expect T Bonds and IG Bonds to return much more than cash so whatever edge you get from leverage is mostly consumed by the 0.6% fee.
Can you explain how you did the calculations for the overall portfolio?

Also, why you assume IT bonds CAGR = 4.4%. Shouldn't it be (3.7%+4.3%)/2
The average return of the portfolio is just the weighted average return of its constituents. The volatility is the hard one to calculate, you need to use the Modern Portfolio Theory matrix equations to solve it. Once you have vol and mean returns, you can compute CAGR. Here's a website showing those equations but there's many others:
https://raniyer07.medium.com/modern-por ... 3444327a59

There might be calculators online for you to use.

I used the 50th percentile returns Vanguard quotes on page 41. That is 4.2% CAGR. So 4.4% average return. If instead of 4.2% CAGR, you want to assume 4% CAGR, then portfolio return will drop from 5.9% to around 5.8%.
apart from the just inherent futility of this entire calculation, you have the additional problem of rebalancing.
The equations of MPT are consistent with continuous rebalancing at no cost. PSLDX does have to pay transactional costs so it doesn't get to rebalance as often as the theoretical portfolio would dictate. So yes, rebalancing drives a wedge between what one would estimate above, and what you'll actually see with PSLDX.
User avatar
OuterBanks
Posts: 167
Joined: Fri Dec 11, 2020 4:19 pm

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

Post by OuterBanks »

CletusCaddy wrote: Fri Jan 06, 2023 1:18 pm Looks like we’re back in business baby!
A very good day for PSLDX. :sharebeer
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