Maybe I am missing something, but when I calculate the change in either value or NAV of most of the bond funds listed in Charles Bolin's Seeking Alpha article I get far higher drops then the MFO statistics show.
Example VCOBX, MFO lists a DD over last year or during Covid crash of minus 0.8, but the NAV dropped from $21.48 (3/6/2020) to $20.20 ( 3/19), a drop of 6%
There were no dividends paid during this time, and even adding back in a proportion of the dividend of $0.04430 paid 3/31, you still get a drop of 5.8%.
Even the drop on a monthly basis for March is 0.8%.
Morningstar listed the Maximum Drawdown over all time periods as 2.7% from 2017 to 2018.
The definition of Maximal Drawdown MFO uses is " The percentage of greatest reduction in fund value below its previous maximum over period evaluated".
Comments
Following the definition of maximum drawdown for this year, I come up with similar MAXDD value as you did for VCOBX: -6.8% versus -0.8% (MFO).
NAV = $21.48 on 3/6/20 - peak date
NAV = $20.02 on 3/19/20 - bottom date
The other difference I found was that the recovery to reach the same NAV was 29 days and MFO reported 2 months.
I understand that MFO uses Lipper database to derive their data. It is possible there is a systematic error on how Lipper is calculating the MAXDD.
@charles, can you help with this question? Thanks
MFO uses month ending total return. Not daily returns. So, intra-month, like 3/18 illiquidity hell, does not get picked-up.
Besides, if you have to watch your investments daily, is it really an investment?
(Just kidding ... the world reacted that week as if an asteroid was inbound!)
c
It seems somewhat disingenuous to limit the calculations to a month to month only statistic. A loss of 7% in a bond fund would unnerve a lot of people and it is only through the grace of the Fed that things snapped back so quickly.
With wide swings and Fed intervention it seems like time to change the definition of MaxDD to more accurately reflect losses like this.
I guess I would have to ask how it compared to like funds?
Stay Safe, Derf
Stay Safe, Derf
https://portfoliovisualizer.com/backtest-portfolio
I absolutely agree that condensed volatility made the monthly returns seem inadequate. But maybe not, at least for investment grade bonds and US equities. I'll cite DODIX and SPY as examples.
I've honestly still not completely reconciled March events.
I know it's a reminder that no investment is immune from drawdown, 'cept perhaps CDs.
I think it makes you genuinely ask that if you have to watch your investments daily, then perhaps they are not investments at all but trades ... or, they are not investment quality.
Sure, when the world is ending, no investment is safe. But short of that, if it just feels like it's ending, like it did in mid-March (and certain times in 2008-2009), while good investments (SPY) may draw down, we can expect recovery ... just based on stress tests of historical events.
March was a kind of litmus test.
It compressed GFC into 2-3 weeks!
I think we are headed into unchartered (In recent history) investment waters with high valuations and extremely low interest rates. For future articles, I am looking at fund performance during the 1960's and 70's when interest rates rose so much. Over longer time periods, bonds still offer downside protection and moderate returns even given rising rates. I have moved to shorter durations and am contemplating paying of my mortgage. I still own some intermediate bond funds.
I prefer funds that actively manage risk and have the flexibility to shift investments instead of me changing funds.
Best Regards,