Weiss Ratings: PIMCO and ProFunds earn E-, Chevron earns A

[powayseller]

In the long bond category, PIMCO, ProFunds, Legg Mason, and Rydex funds are the weakest bond mutual funds, getting a rating of E-. The winners are Highland and Oppenheimer.

In the mutual fund category, ProFunds and Rydex inverse funds get an E-, meaning “Very Weak. The mutual fund has significantly underperformed most other funds given the level of risk in its underlying investments, resulting in a very weak risk-adjusted performance. Thus, its investment strategy and/or management has done just the opposite.”

Weiss Watchdog Service rates the top 10 insurers, stocks, mutual funds, and banks for free, and you can pay for a rating of your particular institution. When I checked WorldSavings, where I have one of my CDs, it was still rated A. I expect that to change though next year, since their GoldenWest division is the largest subprime ARM borrower in CA.

Chevron is one of the 10 top rated stocks. ” A….this stock is among the most likely to deliver superior performance relative to risk in the future.” Chevron is one of the Zeal Intelligence recommendations.

Scripps Healthcare is rated E-. “Very Weak. The company currently demonstrates what we consider to be significant weaknesses and has also failed some of the basic tests that we use to identify fiscal stability. Therefore, even in a favorable economic environment, it is our opinion that policyholders could incur significant risks.”

Why is PIMCO rated so low for its performance, yet Paul McCulley is held up like some kind of genius in the press?

[cooperthedog]

Just to balance the data:

These are just *two* PIMCO funds in the gutter. They have several funds in the top 10%.

Also, the E- funds are in the long bond category, and invest in gov’t paper, while the A+ funds are in much shorter term corporate paper… I assume the risk adjustment shows the under/out-performance of a fund to its investment style, but comparing the A+ to E- funds isn’t truly apples to apples. As one who investigates the data and debunks the relevance of popular statistics, I’d think you’d have issues with that…

Plus, many Rydex & ProFunds offerings are essentially index funds that investors trade to implement their own strategies (direct, inverse, leveraged). They exist to match an index vs. activley attempting to outperform the market, like a typical “buy & hold” mutual fund. These funds can be great tools to allow an investor to bypass the inability to short or use “margin” in their IRA/401k (for those that can tolerate the substantial risk).

[equalizer]

Rydex and Profunds that are leveraged 2 to 1 are horrible investments. If S&P 500 returns 6% after inflation over 30 years, then shouldnt these funds return 12%? NOOO!
Because on down days they lose twice as much and it takes a lot to overcome that loss. So you might end up less than 6, esp with HIGH exp ration.

[powayseller]

I was surprised to see any PIMCO funds below a B, since PIMCO to me was synonymous with the best bond management available in this country. It turns out I was wrong. PIMCO severely underperformed in their mission in the long bond category, and I find this concerning and a reason to question Paul McCulley going forward.

About Profunds and Rydex, it turns out they do not accurately track the inverse at all. One blogger invested in it, and on a day that the correlated stock market was DOWN x%, the Profunds fund, which should have been UP x%, was down also! He wrote a letter of complaint. I investigated Profunds this spring, and wrote several letters of complaints to the company, because they refuse to disclose ANY of their holdings. They do NOT short the correlated stock fund, as they claim. Thus, their E rating, because they do poorly at accomplishing their mission. So these funds are somewhat misleading in their claims of shorting the market. If they did truly short the market, and peform inverse of the market, I would be buying shares of those funds.

I trust Weiss Ratings, and that’s why I paid $15 per report on my banks. If Weiss isn’t data, what is it?

[Daniel]

Equalizer,

I’m just curious: do you know how they claim to produce exactly 2 * index results? I don’t think this is mathematically possible. If you naively buy the SPY with 50% margin, your return will be (2*SPY – margin interest).

They probably use some option strategies, but no option strategy that I can think of is guaranteed to produce a 2 * index return. For example, selling puts at high strike prices at 2 to 1 leverage returns close to 2 * index most of the time; but if the market goes up sharply they’re left behind.

[cooperthedog]

Equalizer – Rydex & Profunds that are leveraged and/or short the market *are* horrible investments to hold long-term, just as shorting an index/stock or buying on margin for 30 years is a very poor choice.

These funds are not designed for that timeframe. They are designed to allow investors to short an index or use margin for a limited time. Their expense fees are far less than what a typical online broker would charge for margin (~10% these days). So, they are good alternative to shorting/leverage via your broker, and the only viable option for many retail investors use in a tax-deferred account. For those who don’t use/aren’t comfortable with margin, they would be a poor choice.

[Daniel]

Cooper,

Feel free to take a stab at the question I asked Equalizer above. I read about those funds awhile ago, and could never figure out how they would replicate 2 * index (or minus 2 * index, for that matter).

Thanks,
Daniel

[cooperthedog]

powayseller, The inverse Rydex funds that track the major indices (e.g SP500 & NASDAQ) do *very* well in matching their performance. I’ve included two graphs that should illustrate the point. They remind me of inverse function graphs from math class. I’ve included a popular ETF as well (SPY & QQQQ) for each chart.

[img_assist|nid=1026|title=Rydex Inv SP500|desc=|link=node|align=left|width=400|height=228]

.

[img_assist|nid=1028|title=Rydex Inv NASDAQ|desc=|link=node|align=left|width=400|height=233]

As for ProFunds, I believe I may have made a blanket statement regarding them 🙂 as I do not use them nor have the relevant data at hand to confirm or deny your bloggers experience.

As for Weiss, I’m not saying their data is flawed, in fact it looks like a great service. But, directly comparing their A+ to E- isn’t fair, since the bond funds differed by investment objective/timeframe.

[cooperthedog]

Daniel – I think your assumption of using options or other derivatives is correct, as those funds don’t track nearly as well as the inverse funds, especially during large moves. I don’t see another viable method.

[powayseller]

cooperthedog – thank you for those charts and info on Rydex funds. What a fabulous way to go short the market.

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