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Old 10-23-2009, 04:08 PM   #21
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Well, I'm considering something like Fidelity Strategic Real Return FSRRX instead. That has an allocation: "using a neutral mix of approximately 30% inflation-protected debt securities, 25% floating-rate loans, 25% commodity-linked notes and related investments, and 20% REITs and other realestate related investments."
It's an option.

But with 70% of the fund linked to equities, commodities and high yield loans one may question the fund's suitability for their "fixed income" allocation.

Many people hold REITs in their equity buckets (I know I do), so they may not want to double dip here.

I do think loans have some merit, especially now, as short rates only have only one way to go and many companies are starting to refinance their leveraged loans (often times repaying at par loans that are trading at 80-90 cents). Fidelity also has a loan fund (FFRHX) that might be worth taking a look at. But if the OP thought recent volatility in VFSUX was too much, loan funds fared worse.

One other thought I had on loans. If inflation goes disco on us, and short rates go up dramatically, those highly leveraged companies may not be able to handle the increased cost of debt. So while your coupon goes up with inflation, so does your probability of default. They may not be a great hedge against very high inflation . . . but will probably do well as interest rates go up to mid single digits.
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Old 10-23-2009, 04:50 PM   #22
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It's an option.

But with 70% of the fund linked to equities, commodities and high yield loans one may question the fund's suitability for their "fixed income" allocation.

Many people hold REITs in their equity buckets (I know I do), so they may not want to double dip here.

I do think loans have some merit, especially now, as short rates only have only one way to go and many companies are starting to refinance their leveraged loans (often times repaying at par loans that are trading at 80-90 cents). Fidelity also has a loan fund (FFRHX) that might be worth taking a look at. But if the OP thought recent volatility in VFSUX was too much, loan funds fared worse.

One other thought I had on loans. If inflation goes disco on us, and short rates go up dramatically, those highly leveraged companies may not be able to handle the increased cost of debt. So while your coupon goes up with inflation, so does your probability of default. They may not be a great hedge against very high inflation . . . but will probably do well as interest rates go up to mid single digits.
Well - I have been going round-and-round in my head about how to categorize something like this. I could switch my REIT position to this, or I could create a 4th category in my AA for this, and get rid of REITs as part of may equity allocation, or I could.........

That conversation has been going on in my head for several months now.

I just assumed he was using FFRHX for the floating rate loan portion - or, the same investments - same difference. I am very familiar with that fund.

I'm not concerned about how such a fund would handle all weathers - I just need it to help hedge some market conditions. I would really like some commodity exposure, but I think I might prefer it wrapped in this instead of stand alone. And then there is deflation - this fund would be killed by deflation. The more traditional bonds though would do well (usually).

I would use this fund as a "diversifier" against the more core bond positions in my AA - or even against the entire rest of my AA.

Audrey
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Old 10-23-2009, 05:17 PM   #23
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Hi Audrey, I was looking very seriously at PCRIX which is a PIMCO commodities fund that uses the collatoral to purchase TIPS. Swedroe recommended this on the Boglehead's site and there have been many CCF posts pro & con. Perhaps you have seen some of this. Also Swedroe covered CCF's versus other investments like gold and natural resource stocks in his recent Alternative Investments book. If I purchased CCF's it would be for protection in an extreme geopolitical event leading to something like an extreme oil supply disruption event.

Unfortunately, to purchase CCF's Swedroe is recommending this come from the equity side because they go down with demand shocks like equities do (as we saw in the last half of 2008).
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Old 10-23-2009, 07:58 PM   #24
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Well - I have been going round-and-round in my head about how to categorize something like this. I could switch my REIT position to this, or I could create a 4th category in my AA for this, and get rid of REITs as part of may equity allocation, or I could.........
This fund is pretty hard to classify, but I'd try to include it in my AA according to its components. What's clear to me is that 30% (TIPS) belongs in "fixed income" and 20% (REITs) belongs in "equity". The loan allocation probably belongs in "fixed income" (although junk bonds sometimes become equity, and often behave like equity). The commodity slice is a tougher one because it fits neither category. Maybe the correct approach is to ask yourself how comfortable you are with the current risk profile of your portfolio. If you're really comfortable, then allocate it to fixed income (because that will increase the risk of your portfolio) and if you're less comfortable use commodities to displace equities.

For me, I have TIPS and REITs. I even own a DJUBS index, even though I'm not completely sold on commodities as an asset class. So I've pretty much replicated this fund in my standard asset allocation. All I'd have to do to make it complete is add FFRHX, which may not be a bad idea.
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