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A Bond-Free Portfolio: Why Cash Should Replace Bonds To Reduce Risk And Improve Returns

Summary Most conservative investors think that bonds should hold the largest position in their investment portfolio. Cash or “near cash” has become a major investment medium that is included in the majority of individuals’ portfolios. Can replacing bonds with the current near cash alternatives provide better long-term results and reduce overall portfolio risk? In a recent interview, Howard Marks, the great investor and co-chairman of Oaktree Capital, quoted the original Dr. Doom, Henry Kaufman, who once said “There are two kinds of people who lose money: those who know nothing and those who know everything.” Those of us who are selling investment services, whether portfolio management or investment products, have a tremendous ability to locate or create research that rationalizes our approach to building and maintaining a portfolio. Because we spend so much time and effort in this process we can become one of “those” who think they know everything, and as a result, disregard our primary purpose, which is to help people preserve and grow their wealth. This month, I want to share with you some thoughts on asset allocation. These views are contrary to the conventional approach that has been used quite successfully for decades; the basic stock, bond, and cash mix. The question we will try to answer is why cash is held in lesser amounts and only used to meet current needs or as an opportunistic buying reserve for stocks and bonds. Welcome New Members Before we begin, I want to take a moment to welcome all the new and returning members into the largest investment club in the world, the “Buy High, Sell Low Club.” Given the horrendous market returns beginning in August and running wild through the end of September, the club’s membership has grown so much that it can only hold meetings in cyberspace, as there is no location in the world that could accommodate all of the members. In my early years, I was a card carrying member of the club. I first joined in the seventies and rejoined again early in the eighties. I am happy to say that since I have again let my membership expire, I have been able to resist the urge to renew. I am just as happy to say that you have also been able to resist this club’s temptations. And if you haven’t noticed, since the end of September the markets have been recovering quite nicely. Some of you may think that resisting the club’s pull is easy. However, regret and the ever-present destructive forces of “should’ve, would’ve, could’ve” can be more agonizing than watching your portfolio value decline. For me, even though I have been rewarded with a very attractive long-term return on my capital, during those times when markets acted badly, I did not know when or if my portfolio would recover its value. I had to rely on my training, experience, and yes, faith that the businesses we own would find a way to grow their profits and dividends. If you feel at any time that the sirens’ call of the club is hard to resist, please let us know. We will do all we can to help, and together we will work towards finding a solution that we hope will be best for you. Asset Allocation I would venture to say that the majority of financial professionals believe asset allocation, not security selection, is the primary driver of portfolio returns. There are also just as many who think stocks are risky, bonds are safe, and cash has little use in a portfolio. Because of this, the majority of conservative investors think that bonds should hold the largest position in their investment portfolio. This belief is reinforced through the use of target date funds, which are held by so many individual investors in their 401K plans. Most target date fund investors take the time to read the literature, which says the fund will be less risky as they get closer to their retirement date. This is accomplished by holding less stocks and more bonds. This belief is also reinforced by Jack Bogle, the well-known founder of the Vanguard Funds, who has over the years told individuals that their basic allocation to bonds should be equal to their age. If you are 50 years old, your portfolio should be invested 50% in stocks and 50% in bonds. At age 70, it should be 30% in stocks and 70% in bonds. At age 25, you should have 75% of your money in common stocks and just 25% in bonds. This belief has also been reinforced by academics whose financial research influences the asset allocation of large pension plans, endowments, foundations and trusts. For a majority of institutional investors, a portfolio with 60% in common stocks and 40% in bonds is the norm. Variations from this norm are not taken lightly, and most are done only under the guidance of professional advisors who place bets on multiple alternative investments in hopes of earning superior returns. The greatest reinforcement of all has been bonds themselves. For the past 35 years, they have performed admirably, producing results that reassure investors they are safe. They have not lost money, and depending on when they were purchased could have increased capital, all while providing a respectable rate of return as readily spendable interest payments. With all of the good things bonds have done for investors, how could I have the audacity to suggest that a bond-free portfolio for individuals is appropriate, and that cash should replace bonds to reduce portfolio risk and increase returns? My thoughts on asset allocation were highly influenced by two individuals. The first I have written about many times, the great Benjamin Graham. Through his work I learned that the safety of capital is directly related to the price paid relative to the intrinsic value of both stocks and bonds. The second was Peter L. Bernstein, whose writings gave me some basic training in understanding the nature of risk and the primary place it holds in asset allocation. Benjamin Graham and Portfolio Policy Prior to reading Benjamin Graham’s Intelligent Investor , I thought very little about asset allocation, as I was far more concerned with the problem of feeding my family. This conflict caused me to do what many in our industry continue to do today: “sell what you can.” Armed with little training and having faith in the wisdom of the firm, I sold whatever product they happened to recommend at the time. I think all of you will agree that this is not the most intellectual approach to financial advice. In Chapter 4 of The Intelligent Investor , titled “General Portfolio Policy: The Defensive Investor” Graham writes this: We have already outlined in briefest form the portfolio policy of the defensive investor. He should divide his funds between high-grade bonds and high-grade common stocks. We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50, between the two major investment mediums. According to tradition the sound reason for increasing the percentage in common stocks would be the appearance of the “bargain price” levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgment of the investor the market level has become dangerously high. At the time of Graham’s writing, the options for the average investor were almost limited to individual common stocks, with only a few opportunities in high-quality bonds. Of course the world has changed, and the explosion of new product introductions from the financial engineers on Wall Street allow almost everyone, even those with limited savings, to participate in hundreds of other assets beyond stocks and bonds. However, the majority of individuals today still use the basic stock/bond portfolio. And with the popularity of target date funds, I believe this will continue far into the future. The greatest change since Graham is the ability to earn a competitive interest rate on cash. Beginning with FDIC Insured deposits, including certificates and money market mutual funds, cash or “near cash” has become a major investment medium that is included in the majority of individuals’ portfolios. Peter L. Bernstein, Risk, and Diversification On just a few occasions I have shared the wisdom of Peter L. Bernstein with you. Even though I have some ideas contrary to his thoughts, there is no question of his influence on my understanding of risk, which shows in how we manage your portfolio. He is best known for his book, Against the Gods: The Remarkable Story of Risk, which sold over 500,000 copies worldwide and is still widely available. It should be required reading for all investment professionals. Bernstein was an investment manager, teacher, author, economist, and financial historian. In addition to 10 books, he authored countless articles in professional journals. One of these, titled How True Are the Tried Principles? , appeared in the March/April 1989 edition of Investment Management Review. This short article had a significant influence on my investment approach to building and maintaining balanced portfolios for conservative investors. I want to highlight a few portions of this article. Mr. Bernstein states, without reservations, that “bonds should trade places with cash as the “residual stepchild” of asset allocation to reduce portfolio risk and improve returns.” This is controversial, as there is almost universal belief that bonds are “safer” than stocks and by default will reduce risk. Risk as defined by most academics is not a permanent loss of capital, but the volatility of the market value of a portfolio. To minimize risk, we therefore just have to reduce the volatility of the portfolio’s market value. The preferred approach to accomplish this is through diversification. Mr. Bernstein’s words about diversification: Let us consider for a moment how diversification actually works. Although diversification helps us avoid the chance that all of our assets will go down together, it also means that we will avoid the chance that all assets will go up together. Seen from this standpoint, diversification is a mixed blessing. In order to keep the mixture of the blessings of diversification as favorable as possible, effective diversification has two necessary conditions: (1) The covariance in returns among the assets must be negative; if it is positive, we will still run the risk that all assets will go down together; and (2) The expected returns in all the assets should be high; no one wants to hold assets with significant probabilities of loss. Here’s a little reminder about covariance and your portfolio. If the market value of your stocks and bonds go up or down at the same time, then the stocks and bonds’ covariance is positive. If the value of your stocks goes down and the value of your bonds goes up at the same time, then the covariance is negative. To limit the volatility in your portfolio, you would want your bonds to produce positive returns when the market value of your stocks goes down. Mr. Bernstein’s words about covariance: Consider covariance first. We know that the correlation between bond and stock returns is variable, but we also know that it is positive most of the time…Stock returns correlate even more weakly with cash, but such as it is, the correlation between stocks and cash is negative. Bonds and cash also correlate weakly, but the correlation here tends to be positive. Monthly and quarterly bond and stock returns are simultaneously positive over 70% of the time. This ratio increases as we lengthen the holding period, as all assets have a higher probability of positive results over the long run. The meaning is clear: most of the time that bonds are going up, the stock market is also going up. Unless bonds tend to provide higher returns on those occasions, they will be making a reliable contribution to the overall performance of the portfolio only during the relatively infrequent time periods when the bond market is going up and the stock market is going down. Even though many of us believe when stocks go down, bonds go up, and vice versa, this has not been the case. Given that bonds fail as a diversifier to reduce risk, why do so many people hold bonds? The only reasons are that bonds, in most occasions, pay a higher current income than both stocks and cash, and historically have been less volatile than common stocks. Today is one of those few occasions when dividend yields on common stocks exceed those of bonds. The current dividend yield of the S&P 500 is 2.12%. Compare that to the yields on US Treasury Obligations: 1-Year Maturity 2-Year Maturity 3-Year Maturity 5-Year Maturity 10-Year Maturity 0.23% 0.61% 0.91% 1.36% 2.04% Source: U.S. Department of the Treasury as of 10-16-2015 If bonds provide less income than common stocks, and the benefits from diversification are limited to only a few occasions that happen infrequently, can replacing bonds with the current near cash alternatives provide better long-term results and reduce overall portfolio risk? Mr. Bernstein’s words about cash: Although cash tends to have a lower expected return than bonds, we have seen that cash can hold its own against bonds 30% of the time or more when bond returns are positive. Cash will always win out over bonds when bond returns are negative. The logical step, therefore, is to try a portfolio mix that offsets the lower expected return on cash by increasing the share devoted to equities. As cash has no negative returns, the volatility might not be any higher than it would be in a portfolio that includes bonds. …The results of a portfolio consisting of 60% stocks, 40% bonds, and no cash (are compared) with a portfolio of 75% stocks, no bonds, and 25% cash….The results are clearly in favor of the bond-free portfolio, which provides higher returns with almost identical levels of risk. As each of you are aware, we have let our bond holdings mature without reinvesting the proceeds, deferring to allocate our fixed income holdings in short-term bank deposits, CDs and, if available, stable value funds. The rationale has far more to do with our expected rates of returns of common stocks relative to bonds, and the increased risk of bonds in a period of low interest rates. Given the current rates paid, bonds are very vulnerable to negative returns. If interest rates are higher in the near future, then the market value of the bond principal could easily fall well beyond the amount of interest income received. Cash, on the other hand, will not suffer at all. In fact if rates increase, cash will add positive returns to your portfolio. As for common stocks, the income received in dividends is likely to be much higher over the next ten years than it is today. If dividends do increase, as we expect, the market value of common stocks should produce positive returns at least equal to that growth in dividends. Bonds, however, will be limited to the interest rates paid today with no increase in income at all. _______________________________________________________ Anderson Griggs & Company, Inc., doing business as Anderson Griggs Investments, is a registered investment adviser. Anderson Griggs only conducts business in states and locations where it is properly registered or meets state requirement for advisors. This commentary is for informational purposes only and is not an offer of investment advice. We will only render advice after we deliver our Form ADV Part 2 to a client in an authorized jurisdiction and receive a properly executed Investment Supervisory Services Agreement. Any reference to performance is historical in nature and no assumption about future performance should be made based on the past performance of any Anderson Griggs’ Investment Objectives, individual account, individual security or index. Upon request, Anderson Griggs Investments will provide to you a list of all trade recommendations made by us for the immediately preceding 12 months. The authors of publications are expressing general opinions and commentary. They are not attempting to provide legal, accounting, or specific advice to any individual concerning their personal situation. Anderson Griggs Investments’ office is located at 113 E. Main St., Suite 310, Rock Hill, SC 29730. The local phone number is 803-324-5044 and nationally can be reached via its toll-free number 800-254-0874.

A Perfect Starting Portfolio For The Young, Long-Term Investor

Summary Of supermarkets and stock exchanges. Of what does the perfect starting portfolio consist? Personal recommendations. The other day I walked into a supermarket with a clear, self-given mandate to buy only three essentials: coffee, cottage cheese, and birthday-cake flavored oreos. While walking through the aisles, I couldn’t help but be enticed to buy all sorts of things for which I had no real need. It isn’t as though these things didn’t have merit or that I didn’t consider them worth the money, but it was simply the case that at the time those other items would have been superfluous to my goals. In like manner, there are thousands of companies that have exciting prospects. There are thousands of companies that could benefit from a trend that you see in the future, or whose products you know and love. If you’re like me, you don’t have enough money in your IRA to invest individually in all those companies, and there’s the rub (as Bill Shakespeare would say). I left the supermarket that evening, essentials in hand and head held high, because I knew what I wanted, and refrained from deviating from that. Walking out, I thought about how grocery shopping applied to building a portfolio, a similar situation in which we are continuously buffeted with advice and rhetoric. The purpose of this post is not to tell you what to buy. That went out the window when I showed how partial I am to cottage cheese and BCOs (try the latter and this will all make sense). What I do aim to accomplish, is to show how building the perfect portfolio starting out doesn’t have to be so difficult. All that is required is that you know what you want to achieve, and how to achieve it. In the last section, I will tied it all together with a ten-company portfolio that meets my goals for core holdings. What do I want, again??? Formulating a strategy for investing is easier said than done. There are many legitimate investment motifs that are frequently employed. I have been more inclined towards different ones over the past years: event-driven, dividend growth oriented, and macroeconomic trends to name a few. Perhaps it is just me being young, but I find it easy to lose the forest for the trees. What I have come to believe is that I need a core portfolio before I venture into themed investment. It is far too easy to lose patience and become distracted by a prospective investment without a core group of holdings. The purpose of long-term investment is to capitalize on compounding gains, and the thrill and corresponding quick gain from correctly interpreting an event or recognizing a short-term trend can’t match the long-term value of compound gains. The long-term value of a company lies in sustained growth of earnings. These considerations in mind, I set about to establish the characteristics of companies in the core portfolio I will be putting together piecemeal in the coming months. Like many others, I have been wary of high historical valuations caused by loose economic policy, as well as brewing global tumult in emerging markets. I do believe these are significant over-arching risks, but that is why a long-term portfolio is so attractive. Value for the long haul can subsist through economic downturns. What I look for in my retirement portfolio Word to the wise: In my opinion this should be ancillary to a 401K. I would much rather diversify within a 401K and leave this type of portfolio as a Roth IRA. Higher ceiling, but higher risk. To get to the crux of the matter, these are the characteristics I want to see of companies in my starting retirement portfolio, with a quick summary of what each means to me: Established American companies : I stick to what I know, which carries less risk. Another consideration is that investing in a foreign company will add currency considerations to earnings and dividends. Reasonably valued : I don’t want to buy something which has its future growth already paid for. As future earnings are of consummate importance, I will reference p/e for simplicity’s sake. Diversified through sectors : Using Morningstar’s 11 sectors , I seek to achieve business diversification. Combining communication services and utilities will give us a round 10 companies to own. Longevity (35 years) : Quite simply: I want the company to be still around (and growing) in 35 years. Well-managed : Concept and execution. The greatest ideas still need skillful execution to be profitable for long time frames. Prospects for continued growth : One has to try to look into the future, not just be stuck gazing into the rear view. Commitment to shareholders : Dividends help with compound gains. Buybacks can be beneficial. One company does neither and makes the list. I believe these expectations can lead to a well-rounded beginning portfolio that can be held for the long-term. Once you set expectations for yourself, I encourage you to dive in to the company’s financials, current and future projects, and the stated business model for each. Due diligence is crucial for the long-term investor. My perfect starting portfolio Without further ado, I will list out the portfolio I will be adding piecemeal into my Roth IRA, highlighted by sector for the sake of organization. The purpose of this article is not to spell out every aspect, positive or negative, of each company, but simply to spell out why it makes the cut over all the others. In-depth analysis regarding financial soundness, attractive valuation, and future prospects should be done by every individual investor; there are also articles on Seeking Alpha for every one of these companies to consider. Basic Materials: The Dow Chemical Company (NYSE: DOW ) My thought is that basic materials as a whole can be a tricky sector, whose performance is dependent largely upon the prices of underlying commodities. A company like Alcoa (NYSE: AA ) is at the mercy of aluminum for its performance. Chemicals are always in demand, and a company like Dow, which has been around since 1897, knows how to run a business. Via Yahoo! Finance: “It serves automotive, electronics and entertainment, healthcare and medical, and personal and home care goods markets.” Dow ticks all the boxes, and a 3.5%+ dividend doesn’t hurt, adding a margin of safety to a reputable company with lasting prospects. Consumer Cyclicals: The Walt Disney Company (NYSE: DIS ) My thought is that Disney is one of the best-managed companies out there. Not only have they been around for almost a century, they have shown an ageless quality stemming from changing with the times. Smart acquisitions like Marvel have paid for themselves. Diversification of the business into cruise lines, blockbuster movies, theme parks, and sports broadcasting and web presence (OTC: ESPN ), promise a growing business for decades. They are also aggressive in their dividend hikes because of all that cash flow. P/E is a little steep at 22, but the historical average is surprisingly higher at 26. Consumer Defensive: Service Corporation International (NYSE: SCI ) My thought is that SCI is in the most defensive industry there is: Deathcare. This industry will be bolstered for the next 15 years with a heightening mortality rate, as Baby Boomers reach more advanced age, so it doubles as a demographic trend pick. As for the company itself, it was recommended by Peter Lynch in the late 1980’s and his advice remains as relevant today as it was then. This will be the one pick you won’t find a lot about here on SA, but for further reading I would suggest my article here . Energy: Exxon Mobil (NYSE: XOM ) My thought is that Exxon is far and away the best-run energy company. The company has a AAA credit rating, which is better than the sovereign credit rating of the United States of America. My worries about the future of energy stop at the rock-solid financials and disciplined business approach of Exxon Mobil. The dividend isn’t the highest in the beaten-down energy sector, but they’ve raised it for 32 years straight, and that is through quite a few tumultuous times. Financial Services: Berkshire Hathaway Inc. (NYSE: BRK.B ) (NYSE: BRK.A ) My thought is that actually having little to do with Buffett. The sage octogenarian has a jaw-dropping track record, but his company’s earnings will continue long after he is no longer at the helm. This pick is sort of a cheat for the sector, since I see Berkshire’s strength in its diversity of businesses, not in a traditional financial services way. I myself work in the financial services industry, and I feel a lot of things are changing for the future. Insurance won’t be one of those things, and neither will railroads, Heinz, or a great number of other companies under the Berkshire umbrella. Healthcare: Johnson & Johnson (NYSE: JNJ ) My thought is that I don’t trust biotech. I couldn’t put any biotech in my 35-year timeframe, because R&D is so pivotal to earnings. The Johnson & Johnson brand, with its plethora of constituents, is dependent on people getting cuts, washing their babies, and getting sick with colds and headaches. They also have medical device and pharmaceutical segments, too, so they may not be a biotech, but they will have new products in their pipeline. In the fantasy football world one would say they have a high ceiling and a high floor, so I’m comfortable making them one of these top ten draft picks for my portfolio. Their dividend is about the most sure thing you can find in this life. Industrials: Honeywell International (NYSE: HON ) My thought is that industrials is a hard sector to reduce to one choice. GE, Boeing, and Lockheed Martin could just as easily make this list. I chose Honeywell because I think their prospects are so multi-faceted that to not have them in a portfolio is an oversight. I don’t even have room to talk about all of the segments that Honeywell operates in here, but their diversification, longevity, and integration with technologies that might become dominant very soon make them almost a sure-fire wonderful investment. You can read about why they would be the one dividend stock Adam Aloisi would own here . That’s quite a vote of confidence. Real Estate: Realty Income Corporation (NYSE: O ) My thought is that Realty Income has enough articles on Seeking Alpha that they should be paying the site. The “Monthly Dividend Company” is a darling of the site for good reason: their business model is airtight and low-risk. It is a little bit like a real estate mogul who owns properties, and renting them out, can sit back and collect the checks. Well Realty Income shares 90% of those checks with its shareholders, and has done so since 1994. They expand, but not over-aggressively, and their occupancy rate has never dipped under 96.6% for any year. They are likely the most shareholder-friendly company out there, as can be easily seen from their site . Technology: Alphabet Inc (NASDAQ: GOOGL ) My thought is that Alphabet beats out Apple Inc. as the tech stock to own for 35 years. They own information, and we are in the information age. They are the company everyone wants to work for, so they will (and do) attract the brightest talent. Owning a monopoly on information will allow Alphabet to really do whatever they want, which is a scary but lucrative proposition. They added a verb to the English language. They are also cash-heavy, but have the ideas and reputation to put that to good use for the future. They have only been public for 11 years : crazy to think about, but it’s still in its infancy. It has tremendous growth ahead. Telecom/Utilities: AT&T (NYSE: T ) My thought is that utilities are honestly quite dull and growth is mainly in the future. Within the telecom industry, however, AT&T beats out Verizon as my pseudo utility/telecom I want to own. They have rolled with the punches of technology and monopoly allegations, keeping a rock-solid dividend and growing through advertising and related acquisitions. The DirecTV (NASDAQ: DTV ) acquisition should boost the cash flows of this juggernaut, allowing the 5.5% dividend to keep growing. So there you have the ten companies I would recommend as the perfect starting portfolio for the young, long-term investor. I will reiterate: Do your due diligence. I may find some qualities more attractive in companies I want to own than you do. Personally, I will be buying these companies over the next few months. Looking forward to comments from everyone!

PIMCO High Income: Here Are A Few Examples Of Easy To Find Alternatives

PHK is still trading at a premium. It’s distribution is still high, even after a cut. There are other options, if you care to look. I may sound like something of a broken record on PIMCO High Income Fund (NYSE: PHK ), but I don’t think the worst is over yet for shareholders. At the very least, after the recent dividend cut, it’s worth questioning your commitment to the fund. Here’s why I’m still concerned and a few options to look at. It’s still risky So it might be easy to understand why I would be negative on a closed-end fund, or CEF, with a 60% premium, which PHK sported not too long ago. But why am I still negative after that premium has fallen so far and the dividend has been trimmed? For starters , the nearly 15% premium at which PHK currently trades is still pretty rich on an absolute basis, even though it’s much lower than it was before. Few CEFs trade that far above their net asset values, with most actually trading at a discount. Second, the fund has a distribution yield of around 18% relative to its net asset value, or NAV. (Based on market price the distribution yield is closer 16% because of the premium to NAV.) Think about that for a second. This is a bond fund, albeit an aggressive one, that has to send investors 18% of its assets each year in distributions. In order to do that it will need to generate a return of at least that much or it will be eating into net assets. A decade ago the NAV was over $14 a share, today it’s under $7 a share. To be fair, if you look at the fund’s total return, which includes reinvested distributions, it has done well overall. But if you have been living off of those distributions, the picture isn’t as sanguine. Add in the recent dividend cut and the warning signs aren’t just written on the wall, they have slapped investors in the face. At one point shareholders could hang their hat on the fact that the distribution hadn’t been cut, even during the deep 2007 to 2009 recession. But that’s just not true anymore. And with the payout still so large, you should be thinking about the possibility of more cuts to come. Alternatives So what should you look at? If you just love PIMCO and can’t imagine allowing any other asset manager the chance to run your bond money, there are plenty of alternatives for you to consider. In fact, if you love PIMCO and think PHK’s managers, Alfred Murata and Mohit Mittal, are geniuses, you still have plenty of options . The pair also run Income Strategy Fund (NYSE: PFL ), Income Strategy II Fund (NYSE: PFN ), Corporate & Income Strategy Fund (NYSE: PCN ) and Corporate & Income Opportunity Fund (NYSE: PTY ). These are all different funds, of course, but all four offer distribution yields of around 10% or so and all but one trades at a discount to NAV. PTY, the only one of the quartet at a premium, trades hands at roughly 2% above its net asset value. That’s a lot more reasonable than nearly 15%. And just so we’re on the same page, of the five closed-end funds mentioned so far, only PHK has cut its distribution recently. That’s no guarantee that the other four won’t or that PHK will cut again, but if I had to pick a fund to be concerned about, I’d go with the one that stands out the most… PHK. There are other PIMCO funds with different managers that you could look at, too, of course. But what if you weren’t married to PIMCO (or the two managers of PHK), you could look at funds from any number of reputable asset managers. If you don’t know where to begin, just head over to CEFA.com, the Closed End Fund Association’s free site. Go to the Advanced Search tool from the Fund Selector drop down in the navigation bar. Select “general bond funds” as your classification, which is where PHK lives, and there’s a whole list of options for your perusal. A couple of easy to find examples with good pedigrees: Eaton Vance Limited Duration Income Fund (NYSEMKT: EVV ) and BlackRock Multi-Sector Income Trust (NYSE: BIT ). Both trade at discounts to NAV and both have distribution yields in the 9% range – notable, but not frighteningly high. And BlackRock and Eaton Vance are names at least on par with PIMCO in the asset management business. The point isn’t to suggest that any of the alternatives I’ve thrown out are the perfect one for you or anyone else. My point is to show that there’s no need to be locked into PHK because finding similar funds isn’t hard. You will have to be willing to accept a lower yield. But based on PHK’s unusually high yield and the cut that’s already taken place, less income seems like it could be a real possibility even if you don’t look for an alternative. Hindsight is 20/20. The time to get out of PHK was when it was trading at a huge premium. If you didn’t jump ship then, so be it. Mistake made, now it’s time to learn from what took place. That’s even more true since PHK still trades at a notable premium and still has a frighteningly high distribution yield. My two cents is that it won’t hurt to consider some easily found alternatives.