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Hmmm ... two issues, really. (1) Barron's has been cranking out more quantity but perhaps with a bit less thought lately. (2) They're referring to a Vanguard study that took all of the funds in Morningstar's various "allocation" categories and asked whether they had distinct performance advantages over a 60/40 blend. After a variety of permutations, the answer remained "no."
But since Vanguard researchers know the answer well ahead of conducting the research ...
Perhaps I am not familiar enough with the data but it seemeds to me that almost any portfolio with a reasonable holding in bonds would outperform an all stock portfiolio over the 98-2013 period.' I confess that to me a go- anywhere fund mostly means all caps.
Jerry, just to show how great bonds have been since 1998 vs. stocks through Friday, junk bond fund WHIYX has returned $32,198 vs. $19,472 for VFINX ($10,000 investment)
Take WHIYX's 15 year return (7.95%, per Morningstar) as a benchmark. There are 700 funds with better 15 year returns. Of those 700, 12 are domestic bond funds (Loomis Sayles has the most), with one world bond fund and 15 emerging markets bond funds. In addition, 20 are stock/bond hybrids.
The top three stocks on the list are energy plays: ING Russia (over 50% energy and raw materials), Icon Energy and BlackRock Energy and Resources.
Neither an endorsement nor a criticism. Just a break in the midst of calculating final term grades.
Thanks David. Ok, how about the volatility you would have had to endure to achieve such returns? What's that called, standard deviation? Not a trick question as I am not into research and don't have the answer. My attraction to junk is its trend persistency combined with its low volatility. I would never suggest junk outperforms other categories over the long run, just that it is the most proficient wealth accumulating vehicle if you aren't into diversification and want to sleep easy.
We'd have to ask Charles, since he's the closest thing to Data Monster we've got.
A quick glance at the last 15 years suggests that high-yield as a group was not notably better or worse than a 60/40 hybrid. It was much better than pure large cap equity exposure (the bottom line, in yellow). At the same time, one of the best high yield funds (WHIYX, #2 line in blue) was not nearly so excellent as one of the best hybrids (FPACX, #1 line in red).
For my perspective, your point about "sleeping easy" is absolutely key. If you can't stick with your investments, you can't profit from them. Folks would be infinitely better of planning for 6-7% nominal returns - which are achievable without gut-wrenching adventure - rather than shooting for double-digit gains. There certainly are folks utterly inured to great short-term losses (I'm one of them - '87, '01, '08 were all deeply annoying but not causes for changing course) but they're a lot rarer than we recognize.
Fair enough David. Albeit I am an investor only when the position is moving in my favor and a trader otherwise. A timer I am not. But a fellow member here, also a junk afficionado, once sent me some research on mechanizing how I invest/trade junk and the returns were well into double digits per annum. Roughly (and very roughly since it's his research) it was exiting using a 1.25% trailing stop from highs and then reentering using a 1.25% trailing stop from any lows. You can vary the 1.25% from anywhere from 1.00% to 1.50% if you are into optimization. Confused? Maybe he could chime in.
Edit: In his junk bond research he used the Merrill Lynch High Yield Master II Index as his proxy for junk bond funds.
Comments
But since Vanguard researchers know the answer well ahead of conducting the research ...
David
I confess that to me a go- anywhere fund mostly means all caps.
Take WHIYX's 15 year return (7.95%, per Morningstar) as a benchmark. There are 700 funds with better 15 year returns. Of those 700, 12 are domestic bond funds (Loomis Sayles has the most), with one world bond fund and 15 emerging markets bond funds. In addition, 20 are stock/bond hybrids.
The top three stocks on the list are energy plays: ING Russia (over 50% energy and raw materials), Icon Energy and BlackRock Energy and Resources.
Neither an endorsement nor a criticism. Just a break in the midst of calculating final term grades.
David
A quick glance at the last 15 years suggests that high-yield as a group was not notably better or worse than a 60/40 hybrid. It was much better than pure large cap equity exposure (the bottom line, in yellow). At the same time, one of the best high yield funds (WHIYX, #2 line in blue) was not nearly so excellent as one of the best hybrids (FPACX, #1 line in red).
For my perspective, your point about "sleeping easy" is absolutely key. If you can't stick with your investments, you can't profit from them. Folks would be infinitely better of planning for 6-7% nominal returns - which are achievable without gut-wrenching adventure - rather than shooting for double-digit gains. There certainly are folks utterly inured to great short-term losses (I'm one of them - '87, '01, '08 were all deeply annoying but not causes for changing course) but they're a lot rarer than we recognize.
David
Edit: In his junk bond research he used the Merrill Lynch High Yield Master II Index as his proxy for junk bond funds.