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I'd like to get some thoughts on short-term fixed income options. I'm looking for the 1+% type risk...right now my go-to is DoubleLine Low Duration but I know the MFO community can often come up with unique options that I would never find. All ideas welcome! Thanks!
In the taxable arena, I have a hard time justifying the added risk of any bond fund over the safety of an FDIC-insured bank account. One might eek out a quarter percent or so additional return, but at a cost of volatility along with interest rate and credit risks.
Right now, it's easy to get 1%+ from banks. (I'm looking at straight savings accounts here, not "rewards" checking accounts that limit the size of the account, require you to make a dozen debit card purchases a month, mortgage your first born child ....)
DLSNX has missed the 1% threshold over the past year, and has not quite made 1.25% over the past three years. It may look like it's managing interest rate risk (low effective duration), but it is heavily invested in mortgages, which tend to have negative convexity (meaning that prices will drop faster than duration would suggest). And it is at the low end of credit quality.
I'm not knocking that fund in particular - any fund that gives returns much in excess of bank accounts now is taking risks somewhere or other. Maybe the risks are manageable, maybe not. That's why for taxable yield I'm sticking with banks for now.
Munis are another matter. There, I think that by going out slightly in duration, one can get respectable returns with what for me is acceptable risk. VMLTX, BTMIX (Baird portfolio stats here), MSINX, etc. SEC yields about 0.9% or better, higher credit quality. While the duration tends to be around 2.5 years, I expect less interest rate movement in the muni market. Rates are lower (because interest is tax-exempt) so the same percentage shift in rates means a smaller change in magnitude than for taxable bonds.
Banks yielding over 1% include Ally (1.0%), Synchrony (1.05% - formerly GE Capital Retail Bank), Goldman Sachs (1.05% - formerly GE Capital Bank, a different bank).
Why hold cash if you're than willing to expose it to even a modicum of risk? Would seem to defeat the purpose. Take your risk through other parts of your portfolio.
I hold very little cash per se. What little is held I tend to view as "dead-wood" and don't expect any growth from it due to the very low risk-free rates available today. Similar to msf's use of short munis, I'm willing to stretch my definition of cash just a hair by using Price's ultra short TRBUX. It might net an extra half-percent or so per year over money market funds, and I can tolerate an occassional penny or so deviation from its $5 NAV. But you need to be careful with ultra-shorts. Not all are equal in terms of safety/stability. Some experienced large losses in '08. I've been with Price about 25 years and have found them very cautious in managing these types of conservative investments.
Another thought: As a senior investor with limited appetite for risk I lean heavily toward balanced and hybrid funds that contain cash or cash-like holdings. These managers have a better read on the short term money markets than you and I do, and because they invest in large quantity can obtain a slightly higher return on the cash they do hold. Some houses actually maintain separate institutional cash/short-term income funds for this purpose. A couple hybrids I've used are TRRIX and TRRFX - both very risk-adverse funds.
If you're looking for something slightly more adventurous than cash, you might take a look at Price's PRWBX. It's a solid short term bond fund with a long history that should protect/grow your principal over time - but which is subject to the occasional down-year.
I use VCSH, which is a short term corporate etf. It has more risk than a government bond fund, but at 2% yield, fits the bill for me. I have some cash parked there now. You can get more yield with an intermediate fund, but at 10 basis points expense and high quality that Vanguard is known for, hard to beat for the risk taken.
The question that arises for me is, "Do you need quick access to this cash?" If you participate in a fund supermarket, you may not be able to liquidate an MF bond fund holding for quite some time without paying a penalty. The ETF route may make more sense, but you've got to factor in commissions. For me, I'm willing to pay Schwab and TDA supermarket fund fees in exchange for the convenience of margin,commission-free ETFs, and quick transfers to my checking account if a bill has to be paid. I hold little "cash," but I have plenty of cash at my disposal. I have short-term bond holdings in RPHYX and PTIAX that were established more than 180 days ago, so I can treat them as cash and let Chuck figure out the small amount of tax I owe on a sale.
What others say. Even at high amounts (for me), the few hundred dollars is hardly worth it. I hate holding cash for months and months, and look longingly at PONDX and PDI (which I can trade in a commissionfree account at ML), but usually decide to leave cash as is.
We have revisited this topic about every 6 months for the past 2 years, and nothing much in our collective assessment has moved, as far as I can tell. If safety is your #1 priority, then @hank has suggested a good one that hasn't come up much in prior discussions, viz. PRWBX. Rock-solid during the financial crisis. With respect to DLSNX, I think msf has it measured correctly; if dvd yield is your goal, you really have to ask yourself if the additional credit risk Baruch is taking on to get you a very slight increase in yield is worth it. Probably not. However, if you are planning to use DLSNX as a "holding pen" for money you eventually intend to shuttle to other DoubleLine funds (which is how I've looked at it, as a possible investment), at a more optimal time, then perhaps it isn't too shabby an option.
On the other hand, just because things don't appear to have moved much does not mean things under the covers are not moving. If you're disappointed with current distribution yields (who isn't?), look critically at current allocations. Many ST bond funds have been holding their payouts steady while at the same time increasing their cash holdings, suggesting they are sensing a turning point ahead. If this proves to be correct, then you might benefit more in the near future by being in a fund that has an elevated cash position but may now be yielding slightly less than others.
But I can't help thinking, every time this topic comes up for review, what a sorry state of affairs we're in, when we are reduced to scrutinizing how best to polish our pennies, as a significant mental exercise.
Comments
Regards,
Ted
Best Short-Term Bond Funds:
http://money.usnews.com/funds/mutual-funds/rankings/short-term-bond
Right now, it's easy to get 1%+ from banks. (I'm looking at straight savings accounts here, not "rewards" checking accounts that limit the size of the account, require you to make a dozen debit card purchases a month, mortgage your first born child ....)
DLSNX has missed the 1% threshold over the past year, and has not quite made 1.25% over the past three years. It may look like it's managing interest rate risk (low effective duration), but it is heavily invested in mortgages, which tend to have negative convexity (meaning that prices will drop faster than duration would suggest). And it is at the low end of credit quality.
I'm not knocking that fund in particular - any fund that gives returns much in excess of bank accounts now is taking risks somewhere or other. Maybe the risks are manageable, maybe not. That's why for taxable yield I'm sticking with banks for now.
Munis are another matter. There, I think that by going out slightly in duration, one can get respectable returns with what for me is acceptable risk. VMLTX, BTMIX (Baird portfolio stats here), MSINX, etc. SEC yields about 0.9% or better, higher credit quality. While the duration tends to be around 2.5 years, I expect less interest rate movement in the muni market. Rates are lower (because interest is tax-exempt) so the same percentage shift in rates means a smaller change in magnitude than for taxable bonds.
Banks yielding over 1% include Ally (1.0%), Synchrony (1.05% - formerly GE Capital Retail Bank), Goldman Sachs (1.05% - formerly GE Capital Bank, a different bank).
Why hold cash if you're than willing to expose it to even a modicum of risk? Would seem to defeat the purpose. Take your risk through other parts of your portfolio.
I hold very little cash per se. What little is held I tend to view as "dead-wood" and don't expect any growth from it due to the very low risk-free rates available today. Similar to msf's use of short munis, I'm willing to stretch my definition of cash just a hair by using Price's ultra short TRBUX. It might net an extra half-percent or so per year over money market funds, and I can tolerate an occassional penny or so deviation from its $5 NAV. But you need to be careful with ultra-shorts. Not all are equal in terms of safety/stability. Some experienced large losses in '08. I've been with Price about 25 years and have found them very cautious in managing these types of conservative investments.
Another thought: As a senior investor with limited appetite for risk I lean heavily toward balanced and hybrid funds that contain cash or cash-like holdings. These managers have a better read on the short term money markets than you and I do, and because they invest in large quantity can obtain a slightly higher return on the cash they do hold. Some houses actually maintain separate institutional cash/short-term income funds for this purpose. A couple hybrids I've used are TRRIX and TRRFX - both very risk-adverse funds.
If you're looking for something slightly more adventurous than cash, you might take a look at Price's PRWBX. It's a solid short term bond fund with a long history that should protect/grow your principal over time - but which is subject to the occasional down-year.
Taxable: VWITX
IRA: ZEOIX, PIFZX, SSTHX, SUBFX
Anything above ~2% is a win.
@ep1 Here's a "play sheet". Have fun with the compare and contrast, as you click on the tabs for various investment intervals:
https://www.fidelity.com/fund-screener/compare.shtml#!&fIds=BSBSX,PRWBX,DLSNX,VFSTX
We have revisited this topic about every 6 months for the past 2 years, and nothing much in our collective assessment has moved, as far as I can tell. If safety is your #1 priority, then @hank has suggested a good one that hasn't come up much in prior discussions, viz. PRWBX. Rock-solid during the financial crisis. With respect to DLSNX, I think msf has it measured correctly; if dvd yield is your goal, you really have to ask yourself if the additional credit risk Baruch is taking on to get you a very slight increase in yield is worth it. Probably not. However, if you are planning to use DLSNX as a "holding pen" for money you eventually intend to shuttle to other DoubleLine funds (which is how I've looked at it, as a possible investment), at a more optimal time, then perhaps it isn't too shabby an option.
On the other hand, just because things don't appear to have moved much does not mean things under the covers are not moving. If you're disappointed with current distribution yields (who isn't?), look critically at current allocations. Many ST bond funds have been holding their payouts steady while at the same time increasing their cash holdings, suggesting they are sensing a turning point ahead. If this proves to be correct, then you might benefit more in the near future by being in a fund that has an elevated cash position but may now be yielding slightly less than others.
But I can't help thinking, every time this topic comes up for review, what a sorry state of affairs we're in, when we are reduced to scrutinizing how best to polish our pennies, as a significant mental exercise.