Robinhood App – 4 Reliable Bond Funds with Dividend Pay-out

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Robinhood Download Links:

IOS:

https://itunes.apple.com/us/app/robinhood-free-stock-trading/id938003185?mt=8

Android:

https://play.google.com/store/apps/details?id=com.robinhood.android&hl=en

Robinhood Main-page:

https://www.robinhood.com/

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IOS:

https://itunes.apple.com/us/app/acorns-invest-spare-change/id883324671?mt=8

Android:

https://play.google.com/store/apps/details?id=com.acorns.android&hl=en&gl=us

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Robinhood App – 4 Reliable Bond Funds with Dividend Pay-out

8 comments

  1. Yep. But, to be clear, these aren’t the ‘safe’ bonds you may be thinking of when you hear the word ‘bond’. (Different bond types actually differ from each other greatly whereas stocks all act kinda similar, and the global bond market is so bigger than the global stock market.) If there’s a global recession and all world markets are crashing, the funds mentioned here (PCI,BTZ,BIT,DSL) may crash just as hard. So, you should think of these as being similar to a ‘stock’ fund.

    If you want safe bond funds, then you should look for US treasury funds in an ETF (exchange-traded fund) structure. iShares has a reasonable series of these: SHY (1-3y), IEI (3-7y), IEF (7-10y), TLH (10-20y), TLT (20y), GOVT (mixed). If you want the super long duration (+20y), you gotta go to Vanguard or Pimco: EDV, ZROZ. The longer the duration, the more risky the bonds are. (The risk is interest rates rising very abruptly.) But, treasuries will diversify a stock portfolio since they often go up (yield goes down, price goes up) when everybody’s selling their stocks.

    You may also consider leveraged bond ETFs or ETNs. Since low duration treasuries have very low volatility, it makes to leverage them. And, the leverage these funds use is cheaper than what you can get by leveraging yourself via a borrowing in margin account. Also, leveraged shorter duration treasuries don’t necessary behave like unleveraged long duration treasuries. (Depends on the ‘yield curve’.) So, it still might make sense to leverage them.

  2. I’d add that it’s important to note a closed-end fund’s price vs. its NAV (net asset value). You can only buy closed-end funds (CEFs) at price and not a NAV. This is unlike the usual open-end mutual fund, which you can only buy at NAV. Usually, a CEF’s price differs from its NAV. If the price is lower, then you can buy the CEF at a discount to its NAV.

    As of right now, PCI is trading at a -7.0% discount (price=$18.80/share, NAV=$20.34/share), BTZ at a -10.5% discount (price=$12.87, NAV=$14.32), BIT at a -9.5% (price=$16.30, NAV=$18.13), DSL at a -6.1% discount (price=$18.25, NAV=$19.33). The opposite can be true, too. For example, DBL (Doubleline Opportunistic Credit) is trading at a +16.8% premium now. You can get the NAV from the fund’s website or from Morningstar (http://www.morningstar.com/cefs/xnys/btz/quote.html) or CEF Connect (http://www.cefconnect.com/fund/BTZ).

    The discount/premium issue is important to understand. Generally, you don’t want to buy a CEF if it’s trading at a premium and especially not if it’s historically traded at a discount because usually the fund’s price will over time revert to its usual discount. (An exception could be that if you think it’s rational for the fund to trade at a premium.)

    The discount/premium also affects the distribution yield (dividend yield). For example, PCI currently distributes 9.68%, but because you can buy PCI at a discount its actual yield on price/share for you is 10.51%. (Looks like Robinhood shows this actual price yield.)

    Also, CEFs aren’t restricted to buying only bonds. There are also equity CEFs that only own stocks. Or, CEFs that only own gold and/or silver. But, most CEFs are indeed bond funds. They appeal to the fixed income crowd.

  3. Also, some technical notes about your commentary: PCI, BIT, DSL are less than 5 years old (unlike BTZ), so those aren’t 5-year price graphs. Thus, comparing BTZ and the others with the 5-year graphs is actually comparing different time periods. You gotta get off Robinhood to do a proper comparison.

    BTZ has more treasuries and less junk and a lower degree of leverage (x1.3). That’s why it’s safer. (But, not ‘safe’ in an absolute sense.) In contrast, not only does PCI not have treasuries, it’s actually shorting treasures at an interest-rate hedge. So, this fund will be hit by both junk bond declines and the usual negatively correlated treasury rises. A double whammy. Of course, the managers actively manage this fund, it’s possible that they will adjust their short position in different market situations. And, PCI is more leveraged — at least at x1.43 (from Morningstar), but it’s hard to analyze. (Pimco’s stuff is so complex to figure out.)

    The dip in 2013 was the ‘taper tantrum’. That’s when the Fed said it would start to end its last quantative easing program. And, the bond market freaked out. That’s actually when fixed income CEFs started to get widening discounts and when I started to think about buying them. And, when the oil price collapsed from oversupply, the junk bond market had another decline, which resulted in very extreme CEF discounts. And, at this time, the stock market acted as if nothing was wrong. And, we now know eventually the stock market corrected to match the junk bond market in 2015 and beginning of 2016. But, the bond market has been recovering and is currently outperforming stocks. Who knows what the future will bring?

  4. I just had to come back and drop more ‘paragraphs’.

    Incidentally, Pimco just put out a press release today saying that they’re changing the name of PCI from ‘Dynamic Credit Income’ to ‘Mortgage Income Fund’. It doesn’t reflect a change in strategy. However, they did change the strategy a while to include more mortgage related stuff and reduce the amount to corporate and junk credit.

    So, perhaps, one should note in addition to bond stuff, PCI also invests in non-agency mortgage-backed securities. These are the things that led to the Financial Crisis. During the crisis and afterwards, *nobody* wanted to touch these things. They were toxic. And, relatedly, super cheap. If one had good credit analysts like Pimco does, it might have been possible to separate out the good mortgages from the bad and make some nice profits. And, that is what Pimco and Western Assets did starting in 2012 via their CEFs, PDI (Dynamic Income) and DMO (Mortgage Defined Opportunity Fund). These have handily beat the stock market. PCI is becoming more like PDI. But, PCI trades at a discount whereas PDI is at a slight premium and DMO is at big premium. The risk in this area is if the housing market crashes, then PDI, DMO, PCI may get hurt bad. Also, this trade won’t last forever. Eventually, these mortgages will all paid off and the super cheap securities will be no more. Hard to say how long it will last… Then, PDI, DMO, PCI will have to change their strategies.

    (By the way, if you look at PDI, you can’t just go by the annualized monthly yield because every year so far, it has paid out a special distribution at year end that’s the equal to several months of the distribution amount. Last year, it paid out about the equivalent of 12 months of distributions. So, the monthly yield is around 9%, but the including special, you might estimate it as being 15-20%. DMO has also paid out specials twice a year. These specials are probably partly due to folks paying off their mortgages early.)

  5. News: BIT is paying out a special distribution this month in addition to the normal monthly distribution. It’s actually quite large.

  6. forgot to mention: it’s classified as long-term capital gains. (Which is a better tax treatement!)

  7. if I invest 1500 in to Dividend stock how much of a monthly return could I get say I bought 100 share at 12$ and the Div/yield is 4.0

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