Mutual Fund Whale Goes "All In" On Junk Bonds

A mutual fund whale likes to time the junk bond market. The whale is back to "all in" via ETFs.

In early February, most of the investing world was watching stocks take a tumble. Matt Pasts, the manager of BTS Tactical Fixed Income Fund, which was invested almost entirely in junk bonds, studied a computer model used by his small investment firm in Lexington, Mass. The model gave him a distress signal: Sell. On Friday, Feb. 9, Pasts sold all of his $900 million mutual fund’s high-yield bond investments so that the fund was fully in cash.

Pasts is a market timer, trying to suss out whether the whole high-yield asset class is going to rise or fall in value.

Trading completely in and out of the market is simple for BTS because the fund doesn’t directly hold the bonds. Instead, it has the unusual strategy for a fund of investing almost entirely via ETFs. In late January, before it sold, BTS had about 95 percent of its assets in the two largest junk-bond ETFs.

“A billion-dollar fund that by mandate says it will sell everything to go to cash will create volatility,” says Mike Terwilliger, a portfolio manager at Resource America Inc.

Rude Awakening Coming

Like selling then VIX, this is another one of those strategies that seems destined for a rude awakening. One of these "all in" move is bound to fail at some point.

When that happens (it's guaranteed to - we just do not know when) BTS will at some point pull out creating huge junk bond vacuum, selling into a plunging market.

Rosenberg Tweets


"Lack of investor protections and the effect of central bank stimulus causes rising concern."

With whales selling in and out at the drop of a hat based on computer models, what can possibly go wrong?

Mike "Mish" Shedlock

It's all fun and games until someone gets their eye put out (the next recession).

There is one born every minute.

There will be a day of reckoning for all of the ETF investing, when there are no buyers.

Less hassle than going to Vegas. Don't need to deal with aggressive TSA thugs, car rental snafus, finding parking, long lines at restaurants and such.

Jay Powell vs. Mr. Bond Market. Who will flinch first?

True enough, but this level of play can get you comps on a private suite with room service at most 5 star hotels on the strip.

….and in Vegas, you are stuck playing against a house with an edge. While here, the Fed sees to it that mere productive people are forced to provide you with that edge.

Otherwise the scam that a “financial system” is something useful, and serve some other purpose than facilitating the connected robbing the productive, is at risk of being found out. Even by the current army of well indoctrinated, pliant uncritical and bent over drones.

@Stuki, "Otherwise the scam that a “financial system” is something useful, and serve some other purpose than facilitating the connected robbing the productive, is at risk of being found out." Pareto's Distribution?

The square root of the number of members of the tribe will dominate?

Actually I think its a smart decision, (if I was an ETF manager I would be limits on the buying and selling) only because I believe interest rates are being jack rabbited for all the wrong reasons. I expect interest rate collapse, and junk is the winner.