Mutual Funds Review - First Quarter 2019


This is a review of the funds we typically promolgate to investors.  If we were to create a "Mutual Fund Core", these funds would constitute the bulk of the portfolio.  

Municipal Open-End Funds (Investment Grade Only)

These are investment grade only muni fund choices.  No changes to the current crop of high yield munis were made.  

Existing Holdings

1)  Oppenheimer Rochester Int Term Municipal (ORRYX)

  • ttm yield 2.57%

  • Duration 5.90 years

  • Avg Credit Quality:  BBB

  • Avg Coupon:  5.12%

  • Expenses:  1.05%

  • Performance was okay for the institutional share class (MUTF:ORRYX) but the retail version (ORRWX) suffers from higher fees.  The y-institutional share was up 74 bps last year while the retail share only 52 bps.  We would pass on the retail share class.  

2)  Performance Trust Muni (PTIMX)

  • ttm yield of 2.87%

  • Duration:  5.1 years

  • Avg Credit Quality: BBB

  • Avg Coupon:  4.93%

  • 2018 Performance 0.56%

  • Lower expenses at 55 bps.

  • For those looking for a lower minimum, use PTRMX

3)  Nuveen Strategic Muni (NSAOX

  • ttm yield 2.61%

  • Duration 8.43 years

  • Credit Quality: BBB

  • Avg Coupon:  4.88%

  • Expenses:  0.84%

  • 2018 Performance:  3.07%

  • Strong performance as it focuses on long-term munis.  


1)  BNY Mellon Municipal Opportunities Inv (MOTIX)

  • ttm yield 3.13%

  • Duration 4 years

  • Avg Credit Quality:  BBB

  • Avg Coupon:  5.22%

  • Expenses: 0.90%

  • 2018 Performance:

  • Fees are a bit high at 1%

2)  Eaton Vance Municipal Opportunities (EMOAX)

  • ttm yield:  2.29%

  • Duration is 4.35 years

  • Avg Credit Quality:  BBB

  • Avg Coupon:  4.41%

  • Expenses: 0.95%

  • 2018 Performance:

  • Fees are a bit high at 0.95% and investors should NOT pay a load.

3)  Goldman Sachs Dynamic Municipal (GSMIX)

  • ttm yield 2.76%

  • Duration 4.1 years

  • Avg Credit Quality: A

  • Avg Coupon: 4.48%

  • Fees are lower at 76 bps.  Again, do not pay a load.  Very strong performance.

On Watch

1)  Blackrock Strategic Muni (MAMTX)

  • A bad year, performance fell to the 91st percentile. 

Almost every top performer spends some time in the bottom quartile so we are not overly concerned right now.  We will keep an eye on it for now.  

Concluding Muni Thoughts

We would not make any wholesale changes to the portfolio and would continue to focus on long-term munis as they are still relatively cheap when compared to treasuries.  We still prefer to use closed-end funds for our muni exposure but the opportunities right now aren't the best.  We have been adding to open-ends as discounts have tightened, funds have cut (or we believe will cut in the case of MHI) and there's a lack of opportunities.

Taxable Bond Mutual Funds

All the taxable funds did very well on a relative basis.  While PIMCO Income (PONAX), a core fund, was modestly positive, most of the funds we picked below were up 1-4% providing much better bang for the buck.  

Summary Performance:

The funds we selected nicely outperformed the market in 2018 (six for six).  We think that will continue.  The AGG is up 1.05% this year mostly because interest rates have fallen.  Should they reverse, you'll likely see the six funds above the index outperform again.  


This is a traditional multisector fund that is approximately 10-12% leveraged and invested across a host of asset classes.  The fund was previously like AlphaCentric Income Opportunities (IOFIX) with a large non-agency MBS position.  However, the fund has grown rapidly over the last several years diluting out that position.  Today, the fund is similar to other "total bond" funds with a mix across most sub-asset classes.

Fund Characteristics:

  • $111B AUM

  • 5.17% Yield

  • 1.14% Expense Ratio

  • 2.36 years Duration

The five-star fund is made up primarily of securitized credit, government bonds, and some corporates across the credit quality spectrum.  


ver the last year, the fund performed in line with the benchmark index.  The fund is unlikely to perform as it did in years past as the primary driver was those non-agency MBS.  Still, the fund should outperform the Barclays US Aggregate over a multi-year period.  

This is a great fund to hide out in for the investor who likes to lighten up on CEFs during times of rich valuations (sort of like now).  The fund generates a 5%+ yield.  

You can see the fund manager's fact sheet on PONAX here.

Semper MBS Total Return (SEMMX)(SEMPX)

The Semper MBS Total Return Fund seeks to provide a high level of risk-adjusted current income and capital appreciation.   Under normal market conditions, the Fund invests at least 80% of its net assets in mortgage-backed securities (MBS), including residential MBS (NASDAQ:RMBS) and commercial MBS (NYSEARCA:CMBS). RMBS and CMBS include securities issued by government sponsored entities (Agency MBS), and by private entities (Non-Agency MBS). 

Fund Characteristics:

  • $1.9B AUM

  • 4.12% Yield 

  • 1.09% Expense Ratio

  • 1.29 Duration

The fund is comprised mainly of 69% non-agency MBS with another 22% of commercial MBS.  The ratings on the funds are mostly subprime and new issues.  



The fund has performed extremely well over the 3 year look-back.  When compared to the benchmark, we have used the Barclays Capital US MBS Index Fund, SEMPX has outperformed handily.  The below one year chart shows the steadiness of the NAV.  In the fourth quarter, the NAV fell less than 1%.  

Over the past 5 years, the fund has a positive alpha of 5.41. This means that managers in this portfolio are skilled in picking securities that generate better-than-benchmark returns.  Lastly, the fund's 3-year standard deviation of 2.05% compared to the average of 8.93%, means the fund is far less volatile than the average.

Overall, this fund continues to be a great piece of a diversified portfolio.  It helps ballast out the more volatile CEFs in the fixed income bucket.  My largest worry is how long they can continue to accept new cash and how they will deploy it.  The fund should continue to generate 3-5% total returns over the next year-plus.  

You can see the fund manager's fact sheet on SEMPX here.  

Performance Trust Strategic Bond (PTIAX)

PTIAX is a multi-sector bond fund that seeks to provide income and capital appreciation by investing in undervalued domestic fixed income securities.  The Fund can invest in a variety of domestic fixed income sectors including mortgage-backed securities (MBS), corporates, municipals, other structured credit securities, treasuries, and cash. 

Fund Characteristics:

  • $1.7B AUM

  • 5.60% Yield

  • 0.83% Expense Ratio

The fund is similar to SEMPX in that its made up of mostly Non Agency rMBS and other MBS.  They invest in a mix of undervalued MBS, as well as munis, corporate securities, and some treasuries.



The fund performed well in the last year, especially during the sell-off in the fourth quarter.  The fund takes on significantly less credit risk than other multisector bond funds.  As spreads widened, the fund was far less susceptible to declines.  The fund also has 17% in taxable munis , 12% in tax-free munis and 6% in treasuries, all providing a boost in the fourth quarter.  


Objective: To purchase undervalued fixed income assets and achieve investment returns through investment income and potential capital appreciation.

The fund is a great place to park capital in larger quantities and get widespread exposures with a stellar portfolio made up of non-agency MBS at its core and also some munis, high yield and other assets.  

Fact sheet here.

AlphaCentric Income Opportunities Fund (IOFIX)

The fund seeks to generate current yield and total return via investments in often overlooked segments of RMBS, ABS, and securitized markets.  AlphaCentric looks to achieve current income by implementing an alpha-driven, "principles-based" investment process focusing on complex and hard to source asset-backed investments. 

The Fund focuses on non-agency RMBS, although the Fund can invest where management finds value. The management team's clearly-defined, niche focus is the core of the RMBS strategy's success. These ABS may encompass aircraft, shipping, and transportation assets, and may include many other sectors as well. The Fund's allocations in these various asset classes depends on the management team's assessment of the risk-adjusted return potential in the marketplace at a given time. Securities in the Fund will generally have an average duration of less than five years. (Source:

Fund Characteristics:

  • $2.54B AUM

  • 5.07% Yield

  • 1.52% Expense Ratio

  • 2.7 Duration

This fund differs in that almost the whole fund is RMBS.  


The fund has outperformed the index by a whopping 22% over three years and has been the number one fund in the category the last two years.  The fund is already up 83 bps this year.  

This is a solid article on IOFIX:

The fund's non-agency MBS focus is at the core of its strategy.  Expenses are a bit high but that is partially by design to keep fund flows manageable and not hurt returns.  Turnover is just 31% which shows the fund's buy-and-hold strategy within the MBS and ABS sectors.  This fund is a bit more volatile than SEMPX but very similar in its focus and execution.  

American Beacon Sound Point FlRtIn Inv (SPFPX) 

The fund invests primarily in floating-rate instruments of non-investment grade U.S. corporate issuers, broadly diversified across industry and sector.  They use an in-depth, bottom-up, fundamental approach with the goal of minimizing credit and default risks.  Sound Point believes alpha generation is driven by active management and being highly selective in the new issue market and nimble in how it invests. They aim to achieve lower volatility than the overall market, particularly in periods of dislocation. (source:

 Fund Characteristics:

  • $1.94B AUM

  • 4.86% Yield

  • 1.09% Expense Ratio

  • 0.2 Duration


The composition is spread over almost the whole range of sectors, weighted most heavily in the consumer (35%), Communications (16%), and Tech (15%).

The fund has mostly B rated bonds.

The performance over the last year is indicative of the floating rate sector in general.  Floaters saw a strong first nine months of the year followed by a disastrous December and recovery YTD.  

We would much rather play the floating rate space from the closed-end side, especially given the wide discounts.  For example, some of Nuveen's floaters recently raised their distributions and trade at double-digit discounts which are about 2-3 points below their 52-week average.  Check out JRO, NSL, and JFR.  

Angel Oak Multi-Strategy Income A (ANGLX

The fund seeks the best risk-adjusted opportunities in fixed income that offer the potential for both stable, monthly dividends and price appreciation. The Fund employs a top-down strategy to identify relative valuation opportunities within the structured credit markets and a bottom-up credit selection process to selecting individual issues. The managers will invest opportunistically across a wide range of credits and issuer types based on relative value within fixed income. 

Currently, the Fund has a bias towards credit and low duration assets to manage interest rate risk. This bias is not set for the long-term and may change over time as the managers’ view on the global economy, interest rates and capital market conditions change. The team does not manage the portfolio’s asset allocation to resemble the Fund’s benchmark in a relative sense, but instead positions the portfolio with a focus on absolute return.

Fund Characteristics:

  • $7.4B AUM

  • 4.34% Yield

  • 1.24% Expense Ratio

  • 1.7 Duration

The fund is two-thirds Non-Agency RMBS with the balance being mostly  CMBS. Quality is mostly speculative with over 60% high yield or not rated.


Another fund that slowly generated positive return throughout the year and saw only a mild drawdown in the fourth quarter.  

Concluding Thoughts

These funds are what we believe are the best positioned without taking on significant amounts of undo risks.  They have large allocations to the areas of the fixed income market where we want to be, namely non-agency MBS.  They should offer up 2-4% returns, at a minimum, over the medium term.  While we believe the CEF space offers up better total return, for those that need lower volatility, pairing the mutual funds with the CEFs can help produce more ballast.  

Please let me know if you have any questions.