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Author: mikecupertino Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Is PAAIX a "lemon"? Date: 1/7/2007 2:04 AM
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Hello:

I am thinking about purchasing PAAIX – Pimco all assets. I recently got an e-mail from Doug Fabian with an attached list of “lemon” funds. Pimco all assets was on the list. I don't know Doug Fabian from Adam and have no idea what his criteria are for selecting funds for the “lemon” list.

I like PAAIX because it has low or negative correlation with other funds I own (VBINX, FRESX, FSIIX, PBDIX). It has reasonable historical return and doesn't seem to be terribly volatile. It's a fund of funds, and I don't quite like the fact the holdings can change at any time, but it's more widely diversified than any other bond fund I'm aware of. The expense ratio (.85) is higher than I like, but not unreasonable for an actively managed bond fund. The Morningstar analyst report is generally positive.

My objective for the bond portion of my holdings is to produce a reasonable return without excessive risk. The combination of bond funds, a money market account, and a tips ladder I'm contemplating has a return of 7% and standard deviation of 3.3% based on 4 years of historical data.

I would appreciate any light anyone can shed on this issue. I am especially interested to find out anything I can about Doug Fabian and whether or not I should pay any attention to his “lemon” list.

Thanks in advance for your help.

Mike
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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19312 of 35400
Subject: Re: Is PAAIX a "lemon"? Date: 1/7/2007 9:54 AM
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Isn't one of the most basic warnings about computer safety, Never Open Unsolicited Email?

I have no idea why you are including PAAIX with TIPS and Money Market and Bond fund assets. It isn't a bond fund.

Also, getting 7%, under current interest rate conditions, for a combination of TIPS, Money Market and Bond fund, if you figure 5% if you're lucky on the TIPS and Money Market portions, would require a lot higher from the bond fund, depending on how much you allocate to each. So, you're talking about pretty aggressive to have a chance of achieving 9% or so.

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Author: mikecupertino Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19313 of 35400
Subject: Re: Is PAAIX a "lemon"? Date: 1/7/2007 12:11 PM
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Lokicious:

I figured 6% for the TIPS ladder. Right now, the coupon rate for TIPS is around 2.4% and I assumed an inflation rate of 3.5%, which accounts for the assumed rate of 6%. Inflation was quite a bit lower in November and December, but I think a lot of that was due to the sharp drop in the price of oil. I don't see oil prices continuing to go down, so I assumed inflation would be back to the historical trend.

I used 4 year rates of return for the other components. These came out as follows:

PBDIX 3.8%
LSBRX 14.4%
PAAIX 10.3%

Based on my percentage calculation to each category, I came up with a 7.3% return. I realize that historical rates of return aren't necessarily a reliable indicator of future performance, but I had to use something to estimate the return from the portfolio. Whatever the actual return turns out to be, my assumption is that it will be at least 1 1/2 to 2% higher than a portfolio of cash and TIPS.

Comments?

Mike




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Author: PolymerMom Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19323 of 35400
Subject: Re: Is PAAIX a "lemon"? Date: 1/7/2007 5:30 PM
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Check it out on www.FundAlarm.com. This is an independent site that compares returns for many funds against various benchmarks.

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