Author Topic: Total world bond index fund at Vanguard  (Read 1290 times)

ac

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Total world bond index fund at Vanguard
« on: February 13, 2017, 01:12:16 PM »
From what understand, there is no Total world bond fund at Vanguard.  There is

BND:  total US bond fund
BNDX:  total international outside the US bond fund

There is a life strategy fund that is 80% total world bonds and 20% total world stocks called VASIX, and that is the closest I can find to a total world bond fund.

Is VASIX the closest thing to a total world bond fund at Vanguard, or is there a better one?

Thanks!

MrSpendy

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Re: Total world bond index fund at Vanguard
« Reply #1 on: February 13, 2017, 02:25:03 PM »
As of 1/31, the world government bond index yields 1.15% to maturity and has an effective duration of 7.7

https://www.yieldbook.com/x/ixFactSheet/factsheet_monthly_wgbi.pdf

The Vanguard Total International Bond Index  has a yield to maturity of 0.8% and a duration of 7.8 (as of 12/31/2016). This fund "employs currency hedging strategies to protect against uncertainty in future exchange rates, so investment returns are expected to reflect the underlying performance of international bonds". So what that says is you probably won't make or lose much money on currency. Let's assume there's no credit risk. So you get a net yield of 0.8% to take on 7.7 of duration upside / downside<--I would venture it's mostly downside.

https://personal.vanguard.com/us/funds/snapshot?FundId=0511&FundIntExt=INT#tab=2

So I would respond to your question by asking, why do you want to take on interest rate (and possibly  currency risk) by lending money to global governments and/or corporates for 7-10 years to make 0.8% to 1.2%?

There are some assets not worth owning. When you invest in global bonds, you are investing alongside non-returns oriented investors like central bankers buying zero yielding European corporates or Mrs. Watanabe buying negative yielding JGB's or banks forced by their regulators to hold home country sovereign debt.

On a hold to maturity basis, the reward is you make about 1%, the risk is if rates went up by 2% globally you would lose ~12-15%. That's a shitty risk reward. If rates go from 1% to 0% you can make some capital appreciation, but you'll own a bond yielding 0%. Rates can go (and are) negative in some places, but that's an extreme outcome. 

I might suggest CD's, I-bonds, a 5 yr U.S. treasury (1.9%), cash, high yield savings account, or almost anything really as a better option. 



« Last Edit: February 13, 2017, 02:41:21 PM by mrspendy »