Vanguard GNMA (VFIIX) or Fidelity GNMA (FGMNX) eeny meeny miny mo....

Soupkitchen

One of these funds would be part of my bond portfolio. Both funds are highly rated, and have performed similarly. The main difference seems to be the expense ratio: Vanguard, .21% vs. Fidelity, .45%. The question is this: would there be any reason to consider the Fidelity fund? I do have my account with Fido, so there wouldn't be any transaction fee. Other than that, I can't see any reason to pick the Fido fund, can you?

hank

Hi SoupKitchen. Don't recall seeing your handle before - good to have you here & posting. The conventional wisdom - and I believe the correct one here - is that with fixed income funds (all other things being equal) you're better off with the lower ER. Because fixed income funds generally return so much less to begin with (compared with eqiities) and also because there isn't that much a manager can do to gain an advantage in return over a similar fund, the ER really translates into money out of your pocket. And even small amounts compounded out over 10, 20, 30 years can make a big difference. Haven't looked at Vangard's GNMA in about 10 years, but it was a darned good fund back than and I'd guess it still is today. So, even if the two funds appear to be "neck & neck" in returns recently, over the longer run the Vanguard fund should have an edge. My concern would be with putting much (if any) $$ into bond funds at the present time. But that's a judgment call and others - including Catch 22 - might wish to elaborate on reasons for doing so. (I keep little in domestic investment grade bond funds now due to historically low yields.)

Advantages of having a larger balance at a single fund house include (1) Some houses waive "maintenance fees" on IRAs or other accounts in return for maintaining a minimum balance with them, (2) simplified record keeping, and (3) ease of moving $$ among their various cash, bond, and equity funds - should that be important to you. Beyond those concerns, if if's a tax-sheltered account, you need to check with the plan sponsor and/or IRS regarding your ability to change custodians and any tax consequences that could arise.

catch22

Hi Soupkitchen,

First, I agree with hank; that given near equal fund types, to gain the value of the lower ER to your benefit.

Two questions about this bond area. Do you have other bond funds that already have exposure to this area; and what is the purpose you desire to achieve with GNMA/mortgage type funds?

We hold numerous managed bond funds and do have a few that are more focused: TIPs, emerging market and high yield/income; while one bond fund is more slanted towards the mortage area.....OPBYX.

Our list are these:

---High Yield/High Income Bond funds
FAGIX Fid Capital & Income
SPHIX Fid High Income
FHIIX.LW Fed High Income
DIHYX TransAmerica HY

---Total Bond funds
FTBFX Fid Total
PTTRX Pimco Total

---Investment Grade Bonds
ACITX Amer. Cent. TIPS Bond
DGCIX Delaware Corp. Bd
FBNDX Fid Invest Grade
FINPX Fidelity TIPS Bond
OPBYX Oppenheimer Core Bond

---Global/Diversified Bonds
FSICX Fid Strategic Income
FNMIX Fid New Markets
DPFFX Delaware Diversified
LSBDX Loomis Sayles
PONDX Pimco Income fund (steroid version)
PLDDX Pimco Low Duration (domestic/foreign)

---Speciality Funds (sectors or mixed allocation)
FRIFX Fidelity Real Estate Income (bond/equity mix)

No bond expert here; but we do keep a keen eye to this area, at this time.

I'll check back tomorrow, as 6 a.m. will be here too soon.

Regards,
Catch

randynevin

I've been investing (monthly DCA) in Vanguard's GNMA fund since December 2008, and have been very happy with it. Fidelity's GNMA fund is also excellent, but I decided on Vanguard since I already had a number of other Vanguard funds (mostly index funds), and because the expense ratio was lower. Over the long haul, the Vanguard fund has slightly but steadily outperformed the Fidelity fund. Over the short haul (2008-present) the Fidelity fund has actually slightly outperformed the Vanguard fund.

mns

Consider the transaction fee when comparing the expense ratios. Fidelity is a rather steep $75 for the Vanguard fund. Not a big deal if you're investing 50k (in which case you'd be looking at the even cheaper Admiral version from Vanguard). But could amount to an extra .8% if you're investing the 3k minimum and plan to hold for three years.

I personally would lean towards the Fidelity fund, it has slightly better performance across all 1, 3, 5, and 10 year periods and currently has a shorter duration (though Vanguard is pretty short as well). Both funds have performed very similarly, not much of a difference if you chart them against each other on Morningstar.

Soupkitchen

Thanks everybody for your suggestions. Catch, I don't hold any bond funds yet, only allocation funds, (Oakmark Equity Income (OAKBX), Vanguard Wellesley (Vwinx), FPA Crescent (FPACX), James Balanced (GLRBX), Pimco All Asset (PASDX) and Permanent Portfolio. I am almost 54 and have some cash that I would like to start earning some income for retirement. I was thinking in a short term bond fund, intermediate term, Gnma, and Global and/or Municipal, putting 25% in each. The Gnma fund is supposedly a low risk option. I don't want bond funds with a lot of volatility, since I also own stock funds and individual stocks.

catch22

Hi Soupkitchen,

The two funds you mentioned have been steady for income production.
Reportedly, if the Fed. Reserve continues or expands the bond purchasing program; mortgage security issues would be part of this area and could get a postive bump in pricing.
Have you considered a "total type" bond fund that would include many other bond sectors?
Some total bond funds are noted as intermediate term; but there are many flavors.
Will your new monies be in tax sheltered accounts (IRA, etc.)?
Fidelity has some decent muni bond funds; but these may be more appropriate for a taxable account.

Regards,
Catch