I have owned OSTIX for some time now and have been pleased with its low volatility and steady performance. It has a solid allocation to shorter duration, mostly non-investment grade bonds.
I am thinking of adding a bit more high yield, want to extend duration a little, and have been looking at AYBDX. I like the 3.5 year duration and low AUM, but noticed that the credit quality on 67% of the bonds are rated B, compared to 39% in OSTIX. Also, OSTIX has 21% in cash, while AYBDX is 100% in bonds.
Any thoughts on AYBDX would be appreciated.
Mona
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You noted:
I have owned OSTIX for some time now and have been pleased with its low volatility and steady performance. It has a solid allocation to shorter duration, mostly non-investment grade bonds.
I am thinking of adding a bit more high yield, want to extend duration a little, and have been looking at AYBDX. I like the 3.5 year duration and low AUM, but noticed that the credit quality on 67% of the bonds are rated B, compared to 39% in OSTIX. Also, OSTIX has 21% in cash, while AYBDX is 100% in bonds.
Any thoughts on AYBDX would be appreciated.
>>>Not that I need to state to you, but I always have to ask myself; "What do I want from this investment?"
Note: to the below.....we seldom hold any cash accounts. Generally speaking, our cash is invested in bond funds that can/may be moved into more productive sectors; if this is what is trending. 'Course there are times when being in some types of bond funds is the place of desire.
Mona, is a short duration HY fund for a cash holding area or that you feel more comfortable in the HY area with a dedicated short duration active managed fund versus an any duration HY fund?
Most active managed HY funds are not inexpensive. My recall of ER's is likely in the .8-1% range.
AYBDX indicates a .99% ER. My best guess from recent movements of short duration HY and going forward is that one might expect a 3-4% annual return. Of course, without knowing what future returns may be; our house is not going to pay a 1% ER for a possible 3-4% annual gain for these types of funds.
Our preference, choosing to hold HY funds; is to let the managers determine the quality of the holdings and their durations. As always, there will be some funds that get it right or better than another fund, for a period of time, as market sentiments continue to fluctuate.
We currently hold about 30% of our portfolio in HY bond funds; and have held as high as 70% going back 5 years prior. We don't trade these in or out very much to get the greatest total trade value; but the overall returns are pleasing over the years. We view this area (HY) as a psuedo equity movement sensitive area with less drama, although subject to strong equity market drawdowns, too.
HY bond funds list, sortable at column headers:
http://news.morningstar.com/fund-category-returns/high-yield-bond/$FOCA$HY.aspx
My 2 cents worth.
Take care,
Catch
Regards,
Ted
http://quotes.morningstar.com/fund/f?t=TFCVX®ion=usa&culture=en-US
One caution: I'd look at price to par closely on HY funds these days, and AYBDX is ~ 108 last I looked. (Dividend yield is around 6.8%, SEC yield around 5.3%.) I own some AYBDX & am thinking about shifting to a less pricey HY fund -- possibly the Artisan fund that's supposed to launch in March, with the former Ivy manager. High yield in general is pretty richly valued ... spread to T's is below 4 now, not a record but usually regarded as in "not exactly a bargain" territory (join the club, HY).
catch22 - The only bond fund that I am using as a substitute for a cash holding, is Pimco Senior Floating Rate symbol PSRIX. While it's held it's own, I'm not certain this has been the best decision. It has fairly hight ER of .80% and the 30-Day SEC Yield is 3.21%.
I do feel more comfortable with credit risk than interest rate risk and I like to stay on the shorter side of duration. I agree with you on the expense ratio on AYBDX and should have mentioned that with a little flipping around (I would be taking from another fund), I can purchase AYBIX with a $25,000 minimum in Vanguard Brokerage and the expense is .62%. I'm not certain that changes your opinion.
Ted - A heart attack I do not need
Hey AndyJ - One of the attributes that attracted me to AYBDX/AYBIX, is that it's not as volatile and has not lost as much as more credit sensitive funds in credit risk-off times. Also as you said, a step out from OSTIX which I have been comfortable with. But I did notice that it is pricey, which may increase the downside risk more than I am comfortable with.
Junkster - good to hear from you. Maybe, just maybe, I should just add to OSTIX and call it a day. For whatever reason, I have this "diversification" thing in my head. I am happy for you with NHMRX. You surely got that right!
As it turns out, one of the constraints I have, is only using Vanguard Brokerage Services. Some fund families like PIMCO, TCW, BlackRock BHYSX and Allianz work very well and other funds such as OSTIX are not great, but manageable (redemption fee of 2% if held less than 30 days). Then they offer funds such as RSIVX, that have a 1% fee ($50 min, $250 max) for shares held less than 6 months. I have also come to learn that there are many funds that are just not available (can transfer in but not purchase or cannot transfer in and not purchase). A good case in point is NHMRX (can be transferred in but not purchased).
Any other thoughts are most welcome.
Mona