Author Topic: What Bond fund do you like?  (Read 18588 times)

bdh221

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What Bond fund do you like?
« on: December 20, 2013, 09:47:37 AM »
Hi,

I am reviewing my year end investments and I have about 7% in bonds and 93% in stocks. I am currently 30 years old. The only bond fund I have is the VFICX. As with most bond funds it was a poor performed in 2013 and I don't really see it getting any better in 2014. What do you invest in to add diversity to your portfolio? What Bond fund do you recommend if any? How much do you like REIT's as a substitute for bonds? If you do like REITS what ones do you recommend?

Thanks for your thoughts.

Frankies Girl

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Re: What Bond fund do you like?
« Reply #1 on: December 20, 2013, 10:04:16 AM »
Um...All of them? I do mostly index funds, and then I don't have to worry about picking and researching, diversifying and worrying... I have a few individual mutual funds that I'm still okay with hanging onto, but most of my portfolio is in index funds.

I do a total bond index fund and a total REIT index fund. VBTLX for the bonds and VGSLX for the REITs are the Vanguard versions; I'm in Fidelity so I have Spartan equivalents.

I'm not expecting them to outperform my stocks. They are there for inflation/deflation hedges.

mm31

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Re: What Bond fund do you like?
« Reply #2 on: December 20, 2013, 10:16:14 AM »
I happen to like them all too, which is why I invest in the total bond market via VBMFX. Highly recommended!

KingCoin

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Re: What Bond fund do you like?
« Reply #3 on: December 20, 2013, 10:36:28 AM »
You looking for government bonds? Corporate bonds? Long dated? Short dated?

KingCoin

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Re: What Bond fund do you like?
« Reply #4 on: December 20, 2013, 12:22:40 PM »
I have a lot of thoughts, but most of them involve being somewhat active and aware.  If you want to be passive, I like a low cost total bond fund.

There are a ton of closed and funds that are very beat up right now on the back of negative bond sentiment. Many are trading at 15% discount to net asset value (NAV), levels not seen since the financial crisis. I think they're a good way to get some extra wind at your back as well as some "free" leverage.

I'd stay away from preferreds. They're a reach for yield asset and buying them in a low-rate, tight credit spread environment is very likely to end in tears. I could construct a fairly low risk, high yield portfolio for you, but you'd have to manage it on an ongoing basis, which will be hard if you don't have the necessary expertise. I proffered up one idea in the "Trade Idea Thread" to give you an idea what's available.

Cyrano

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Re: What Bond fund do you like?
« Reply #5 on: December 24, 2013, 11:00:05 AM »
PenFed's 3% promotional yield on 5 year CDs is better than investment grade bonds are paying. Your best fixed income investment might not be a bond right now.

aj_yooper

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Re: What Bond fund do you like?
« Reply #6 on: December 24, 2013, 01:33:42 PM »
PenFed's 3% promotional yield on 5 year CDs is better than investment grade bonds are paying. Your best fixed income investment might not be a bond right now.

Yup.

KingCoin

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Re: What Bond fund do you like?
« Reply #7 on: December 24, 2013, 02:25:10 PM »
PenFed's 3% promotional yield on 5 year CDs is better than investment grade bonds are paying. Your best fixed income investment might not be a bond right now.

Yes, though it will depend somewhat on how this fits into your portfolio. If you're looking for some market crash insurance, buying 10y treasuries at 3% will probably be a better bet.  If you're looking for a cash-like instrument that keeps up with inflation, a CD might be a good way to go. Just make sure you can get out of it at a reasonable cost if you anticipate moving money around or rebalancing.  If you're looking for yield and don't mind taking some interest rate exposure, a lightly levered long dated bond fund might be a decent play at 7-8%.

Petunia 100

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Re: What Bond fund do you like?
« Reply #8 on: December 26, 2013, 05:29:52 PM »
Hi,

I am reviewing my year end investments and I have about 7% in bonds and 93% in stocks. I am currently 30 years old. The only bond fund I have is the VFICX. As with most bond funds it was a poor performed in 2013 and I don't really see it getting any better in 2014. What do you invest in to add diversity to your portfolio? What Bond fund do you recommend if any? How much do you like REIT's as a substitute for bonds? If you do like REITS what ones do you recommend?

Thanks for your thoughts.

REITs are stocks; they are not at all a substitute for bonds. 

Regards.

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Re: What Bond fund do you like?
« Reply #9 on: December 31, 2013, 12:34:11 PM »
REITs are stocks; they are not at all a substitute for bonds. 

Exactly. REITs are really a distinct asset class, most closely allied with equities.
VNQ - Vanguard REIT Index ETF

For Bond Funds:
VBMFX - Vanguard Total Bond Market Index
VTIPX -  Vanguard Short Term Inflation Protected Securities Index

Blindsquirrel

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Re: What Bond fund do you like?
« Reply #10 on: January 01, 2014, 11:39:10 AM »
Pimco total return

oldtoyota

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Re: What Bond fund do you like?
« Reply #11 on: January 01, 2014, 12:09:31 PM »
I have a lot of thoughts, but most of them involve being somewhat active and aware.  If you want to be passive, I like a low cost total bond fund.


I do the above. I'm in the same boat as you--and working on asset allocation this year.

Richard3

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Re: What Bond fund do you like?
« Reply #12 on: January 01, 2014, 04:01:52 PM »
I think it's US listed, but GLI Finance (GLIF is the UK ticker) is an investment company that specialises in bonds (mostly mid sized UK or US companies' senior notes). It pays about a 10% yield (9.8% right now officially) and interest rate rises would be good for it (ie it's not subject to the problem of borrowing at floating and lending at fixed that many leveraged lenders are). It's not as safe as many options in this thread, but it's a very good return (and there's a couple little slivers upside from some equity investments they have).

Disclaimer / disclosure - I'm long GLIF and debating going longer. Do your own research, not a recommendation etc.


Stache In Training

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Re: What Bond fund do you like?
« Reply #13 on: January 01, 2014, 10:08:31 PM »
Just a thought, as I don't think it was mentioned.  Are these bond funds going in to a taxable or retirement account?  That might make a difference.  I may stay with some muni's if in taxable accounts, and then others for in my retirement accounts.  Just more food for thought.

Blindsquirrel

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Re: What Bond fund do you like?
« Reply #14 on: January 12, 2014, 09:39:01 AM »
  For bonds, I would stay pretty short in duration. Interest rates will rise and when that happens, the value of long duration
bonds will absolutely get creamed.

kyleaaa

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Re: What Bond fund do you like?
« Reply #15 on: January 12, 2014, 03:34:21 PM »
I like the Vanguard Short-Term Bond Index fund and the Vanguard Intermediate-Term Bond Index fund. The one you mentioned is fine, too, although I prefer more in treasuries.

REITs are in absolutely no way a reasonable substitute for bonds. They are their own thing.

KingCoin

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Re: What Bond fund do you like?
« Reply #16 on: January 12, 2014, 03:34:52 PM »
  For bonds, I would stay pretty short in duration. Interest rates will rise and when that happens, the value of long duration
bonds will absolutely get creamed.

How are you shorting long dated bonds?

k9

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Re: What Bond fund do you like?
« Reply #17 on: January 13, 2014, 07:02:29 AM »
I guess "stay pretty short in duration" means "sell your LT bonds and buy ST ones", not "short-sell LT bonds", but I might be wrong.

KingCoin

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Re: What Bond fund do you like?
« Reply #18 on: January 13, 2014, 07:09:12 AM »
I guess "stay pretty short in duration" means "sell your LT bonds and buy ST ones", not "short-sell LT bonds", but I might be wrong.

Yes. But given the poster's certainty that long dated bonds are going to get "creamed", it seems like it would be free money to short them, especially when short dated bonds have such low yield.

joleran

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Re: What Bond fund do you like?
« Reply #19 on: January 13, 2014, 01:40:20 PM »
Yes. But given the poster's certainty that long dated bonds are going to get "creamed", it seems like it would be free money to short them, especially when short dated bonds have such low yield.

Long term treasuries are down 15% this year, it's possibly not a terrible time to buy, but it's very likely they are actually in the process of being creamed.  "Don't try to catch a falling knife".  When interest rates return to a realistic level that takes into account the non-vested inflation the US has been working up, it may become worthwhile to buy in.  As it sits right now, my money is on a 30 year treasury earning you less than a half a percent in inflation adjusted returns.

KingCoin

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Re: What Bond fund do you like?
« Reply #20 on: January 13, 2014, 01:49:39 PM »
Long term treasuries are down 15% this year, it's possibly not a terrible time to buy, but it's very likely they are actually in the process of being creamed.  "Don't try to catch a falling knife".  When interest rates return to a realistic level that takes into account the non-vested inflation the US has been working up, it may become worthwhile to buy in.  As it sits right now, my money is on a 30 year treasury earning you less than a half a percent in inflation adjusted returns.

My issue wasn't with the assertion that long bonds don't offer a good risk adjusted return, my issue was with framing a dramatic sell-off as a sure thing (or a near sure thing). If you believed that, you'd be crazy not to be short the long bond. Basically, I was being snarky and calling out the poster to see if he was putting his money where his mouth is. Sometimes considering the pros and cons of a sort position can shed some light on the value of a long position.

Blindsquirrel

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Re: What Bond fund do you like?
« Reply #21 on: January 26, 2014, 06:42:40 AM »
http://www.schwab.com/public/schwab/resource_center/expert_insight/investing_strategies/bonds/should_you_worry_about_bond_funds_if_interest_rates_rise.html   
 The above is free info, do the math on a 2% interest rate rise on a 20 year duration bond fund. Loss is about 40% and it is instantaneous. The article  has a graph and when interest rates went high in the early 80s, the values dropped dramatically. The interest rate curve has been flattened in an odd way by the ZIRP from the central bank. The risks in a long bond fund or long bond index fund I think outweigh the reward as the spread between long and medium duration bonds is 50-100 bps. (.5-1%). Long bonds are some of the most price volatile instruments around.  When I said stay short, I meant stay on the shorter side as far as in duration, as in stay away from the long duration bonds not sell them short. (If you know when interest rates will really rise, please let me know and we will buy an island). Think of it like this, if you have a 3.75% 30 year fixed mortgage (bond) and mortgage rates go to 8% which is not unreasonable, who will want to buy your 3.75% yielding note? when they can buy a just issued note that yields 8%. The 3.75% note can still be sold but buyers will demand a very, very steep price discount due to the low yield vs what they can buy in a higher interest rate environment.  Bond funds hedge their risk by having a spread of quality, yields, and duration. Hope this helps a bit.

agoraphone

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Re: What Bond fund do you like?
« Reply #22 on: April 27, 2014, 12:22:10 PM »
I realize this thread is on the old side now, but hopefully some folks are still monitoring it and can offer an opinion. I'm a bit of a newby investor and I'm heavy on stocks right now and looking to add some bond funds.

Here's a couple of the funds mentioned in this thread, and their respective yields:

VBIRX Vanguard Short-Term Bond Index fund .87%
VBILX Vanguard Intermediate-Term Bond Index   2.68%
VBMFX - Vanguard Total Bond Market Index 2.09%
VTIPX -  Vanguard Short Term Inflation Protected Securities Index -1.38% 30 day yield (not sure why there's not a 12-mo yield rate available on this one)
PTTPX - Pimco total return 2.18%

So it's looking like intermediate-term funds are earning around 2-3% and short term are earning 1% or less. Can someone please help me understand why you'd want to own a short-term fund that's earning so little? It seems silly when you can get a CD that performs better. Longer term funds such as BLV are earning 4.19%, but I assume that comes with more exposure to the risks of rising interest rates. Would folks agree that intermediate-term bond funds are a good balance of returns versus risk?

Thanks!

KingCoin

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Re: What Bond fund do you like?
« Reply #23 on: April 27, 2014, 02:12:11 PM »
So it's looking like intermediate-term funds are earning around 2-3% and short term are earning 1% or less. Can someone please help me understand why you'd want to own a short-term fund that's earning so little? It seems silly when you can get a CD that performs better. Longer term funds such as BLV are earning 4.19%, but I assume that comes with more exposure to the risks of rising interest rates. Would folks agree that intermediate-term bond funds are a good balance of returns versus risk?

Thanks!

I think you'll find that the corporate bond funds are yielding more than CDs. Take VBILX. The best 5y CDs seem to yield about 2.25%. Is an additional 43 basis points worth the risk? Arguably no, but investment grade defaults are historically very close to 0, so it's not a terrible deal either. What's more important is liquidity. You can buy and sell bond funds at any time of your choosing, perhaps to purchase a home or rebalance a portfolio, whereas you're locked into a CD and have to pay a penalty to withdraw.

Note that it's possible to buy short term bond funds yielding 7-8%; they just contain riskier bonds and use leverage.

Sadly, in this period of tight credit spreads and low interest rates, there aren't many good options in bond land. It's just a matter of choosing the best among a lot of bad options.

DaKini

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Re: What Bond fund do you like?
« Reply #24 on: April 28, 2014, 03:46:24 AM »
Quote
Arguably no, but investment grade defaults are historically very close to 0
Just out of curiosity (i really dont know this, trust me!): Is the cause for this that usually a default is announced by the bond loosing investment grade ratings in the first place?

Like: investment grade -> bad weather coming -> downrating to a point below investment grade -> default
At least this is what i have seen in the euro crisis where we had near-defaults.

Workinghard

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Re: What Bond fund do you like?
« Reply #25 on: April 28, 2014, 04:02:16 AM »
Sadly, in this period of tight credit spreads and low interest rates, there aren't many good options in bond land. It's just a matter of choosing the best among a lot of bad options.

What do you consider the best, KingCoin (and others)? Vanguard recently did a portfolio analysis and based on the consolidated approach, I need to make some changes. I'm not going into international bonds, but as expected they recommended the total index bond fund.

hodedofome

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Re: What Bond fund do you like?
« Reply #26 on: April 28, 2014, 10:51:14 AM »
Assuming that interest rates will rise is bad IMO. Actually, assuming any direction in the future just keeps you biased and not open minded. The reality is that nobody knows where interest rates will go in the future. They could be up, down or flat 5 or even 10 years from now. Look at Japan's interest rates the past 25 years. Did anybody predict they would be this low? Scores of traders assuming that Japan's interest rates "had to rise" have been carried out of the pits since the '90s with no money left after their shorts were run over by the market.

A bond fund is there to diversify your portfolio. It is not correlated with stocks yet offers a return stream through interest payments and possible price appreciation. Nobody can predict the future so saying that interest rates have to go 'here,' therefore I'm going to buy 'this,' is silly. Either just buy a total bond market fund, create your own, or make your own bond ladder and hold it in a weight that goes by your investment policy. For active funds, I like Gundlach so I'll recommend the DoubleLine Total Return fund. He doesn't seem to be as hard headed as Bill Gross these days, although accounting for manager risk Gundlach could end up the same way in the future.

hodedofome

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Re: What Bond fund do you like?
« Reply #27 on: April 28, 2014, 10:56:21 AM »
Hi,

I am reviewing my year end investments and I have about 7% in bonds and 93% in stocks. I am currently 30 years old. The only bond fund I have is the VFICX. As with most bond funds it was a poor performed in 2013 and I don't really see it getting any better in 2014. What do you invest in to add diversity to your portfolio? What Bond fund do you recommend if any? How much do you like REIT's as a substitute for bonds? If you do like REITS what ones do you recommend?

Thanks for your thoughts.

Why do you assume that it will be a poor performer in 2014? It's done better than the stock market so far.

Although to be honest, a 7% allocation to a mid-term investment grade fund doesn't really do much different than a 100% allocation to stocks...

kyleaaa

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Re: What Bond fund do you like?
« Reply #28 on: April 28, 2014, 11:09:01 AM »
Vanguard short-term bond index and Vanguard intermediate-term bond index are my two favorites. For muni funds, the limited-term tax free bond fund and the intermediate-term tax free bond fund are both good, as well. I currently own both the short-term bond index (retirement) and limited-term tax free bond fund (car fund).

Workinghard

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Re: What Bond fund do you like?
« Reply #29 on: April 28, 2014, 05:36:10 PM »
Vanguard short-term bond index and Vanguard intermediate-term bond index are my two favorites. For muni funds, the limited-term tax free bond fund and the intermediate-term tax free bond fund are both good, as well. I currently own both the short-term bond index (retirement) and limited-term tax free bond fund (car fund).

A bond post I can understand with parenthetical inserts! There needs to be a bond guide for dummies. Maybe I should google that. 

Thegoblinchief

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Re: What Bond fund do you like?
« Reply #30 on: April 29, 2014, 06:11:39 AM »
Currently 100% equities. I've got time to let volatility ride, and the guaranteed 6.8% return by prepaying on my SL and mortgage debt is my focus.

soccerluvof4

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Re: What Bond fund do you like?
« Reply #31 on: April 29, 2014, 07:19:25 AM »
Im in the VBTLX and have some exposure to international Bonds in the VTABX

KingCoin

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Re: What Bond fund do you like?
« Reply #32 on: April 29, 2014, 05:05:18 PM »
Sadly, in this period of tight credit spreads and low interest rates, there aren't many good options in bond land. It's just a matter of choosing the best among a lot of bad options.

What do you consider the best, KingCoin (and others)? Vanguard recently did a portfolio analysis and based on the consolidated approach, I need to make some changes. I'm not going into international bonds, but as expected they recommended the total index bond fund.

Short dated or long dated? Government, corporate (high yield or investment grade?), or municipal? Levered or unlevered? There are a lot of flavors and your choice is going to depend on risk tolerance and what kind of portfolio you want to construct.

Mr Mark

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Re: What Bond fund do you like?
« Reply #33 on: May 01, 2014, 03:03:55 PM »
I get my target 15% bond exposure via a % of my AA in Vanguard Wellington fund, which is an 'auto-balanced' 65% equities, 35% med term, medium grade bonds.

While a lot of pundits talk about the end of the bond long term cycle, with interest rates climbing, they may not be right, and so having zero bonds is too volatile for me.

warfreak2

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Re: What Bond fund do you like?
« Reply #34 on: May 01, 2014, 03:09:10 PM »
a lot of pundits talk [...] they may not be right
This is always an understatement.

Mr Mark

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Re: What Bond fund do you like?
« Reply #35 on: May 01, 2014, 03:29:13 PM »
a lot of pundits talk [...] they may not be right
This is always an understatement.

there may even be a negative correlation! Whenever I see those spam ads predicting a massive market correction,  I figure they are a good indication of another bull year ;-)

and if treasuries drop rates another 0.5 - 1% in a Japanese scenario, even those boring 30 year bonds are going to fly!

warfreak2

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Re: What Bond fund do you like?
« Reply #36 on: May 01, 2014, 04:00:11 PM »
there may even be a negative correlation! Whenever I see those spam ads predicting a massive market correction,  I figure they are a good indication of another bull year ;-)
Sounds like an investment in REMARC.

KingCoin

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Re: What Bond fund do you like?
« Reply #37 on: May 02, 2014, 05:44:01 PM »
As with most bond funds it was a poor performed in 2013 and I don't really see it getting any better in 2014.

Whoops.

Boring old long bonds are +11% so far in 2014.

Not bad for something that everyone thought could only go down.

soccerluvof4

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Re: What Bond fund do you like?
« Reply #38 on: May 06, 2014, 07:24:51 AM »
To kingcoins point Two of the 14 closed-end municipal bond funds that I own, Invesco Pennsylvania Value Municipal Income Trust (VPV) and BlackRock Municipal Target Term Trust (BTT), are now up by over 20% since purchasing in mid December 2013; another one, BlackRock Investment Quality Municipal Trust (BKN) is up 15.5%. The rest are as well but closer to 10%. Not to shabby

KingCoin

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Re: What Bond fund do you like?
« Reply #39 on: May 07, 2014, 06:36:13 PM »
To kingcoins point Two of the 14 closed-end municipal bond funds that I own, Invesco Pennsylvania Value Municipal Income Trust (VPV) and BlackRock Municipal Target Term Trust (BTT), are now up by over 20% since purchasing in mid December 2013; another one, BlackRock Investment Quality Municipal Trust (BKN) is up 15.5%. The rest are as well but closer to 10%. Not to shabby

It just speaks to the problems with playing armchair economist; waxing poetic about QE and the inevitability of rising rates, blah, blah, blah. Everyone loves to think they're a contrarian until it involves taking a truly contrary position.