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Trade Alert

September 26, 2014

Today we sold our two PIMCO funds in our Conservative portfolio (and the majority of our PIMCO fund holdings in our client accounts) and moved into Vanguard Mortgage-Backed Securities ETF (VMBS).  

The trade:

  •  Sell ALL PIMCO Mortgage Opportunities D (PMZDX) and PIMCO Bond ETF (BOND) which collectively are 25% of the portfolio. 
  •  Buy Vanguard Mortgage-Backed Securities ETF (VMBS) with the proceeds for a 25% position.


This change is the direct result of the sudden departure of PIMCO founder and Bill Gross, the (former) PIMCO ‘Bond King’ and manager of PIMCO Bond ETF, amidst management turmoil and more recently, and SEC inquiry into possible fund pricing issues. 

While most  fund analysts say (and have been saying before today’s news of Bill Gross leaving for Janus) these are not major issues, we recall a time when the same was said about Janus in 2000 when that fund family was falling apart at the seams. 

There is minimal upside in any bond fund today, and a possible (though unlikely) existence of serious pricing problems and elevated downside if a good portion of the near $2 trillion PIMCO manages decides to make a rapid exit. We’ve seen this problem with money market funds and adjustable rate mortgage funds during the last financial crisis and we prefer to stay ahead of potential problems.

You can view the Conservative Portfolio’s trade chart by clicking here, and you can access the Conservative Portfolio’s trade calculator by clicking here.

Redemption Fee Information

We won’t see any short-term redemption fees from this trade, or short-term capital gains taxes, since we've owned these funds for just over a year (and, as bond funds, there would be minimal capital gains anyway - most gains are paid out as ordinary income along the way).  Still, keep an eye on your own purchase history, which could be more recent then ours, and consider altering your trades for your own tax and fee advantage.

There are no short term redemption fees charged by PIMCO Mortgage Opportunities D (PMZDX), and (BOND) is an ETF. This does not mean your broker won’t charge for a fund sale made a short period of time after an initial buy in a no transaction fee fund like PMZDX (typically 90-180 days) so check your history.