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For better or worse, my 401s and rollover IRAs are all in bonds, DODIX and MWTSX. Needless to say, they are underperforming so far this year.
I have a brokerage account with my company and am thinking of transferring all bond funds into anything that will yield me 2 percent or so return. Any other short term bond funds or other investments you can suggest?
@Jan: Scroll and read "Josh Brown Trifecta: A Million Reasons To Hate Bonds Right Now." Many of us on the Board have been very happy with some form of PONAX. Regards, Ted
Yes, the company I work for does provide the Fidelity Brokerage service and there isn't an additional fee.
I just transferred my other rollover IRA's from previous 401's over to Fidelity so I will have all funds centrally located and have access to more options.
About to turn 66 but will probably work a few more years as I enjoy the job and people. Sure, I'd like to make more than 2% but I want to minimize risk. Of course, if you know of a way to get higher returns with low risk, I am all ears:)
It’s hard to top Dodge and Cox at their game. DODIX is short to intermediate duration. As rates rise, they’ll stretch that out to try to lock in some higher returns. Mostly investment grade. Reasonable fees.
I can’t say whether a bond fund is appropriate for you or where bonds are heading. But if you want and need a bond fund, I’d say stay with DODIX. Of course you can find more conservative bond funds - but they’re not going to generate the longer term returns DODIX might.
Return numbers for YTD are pretty meaningless over the longer stretch. Nothing goes straight up all the time.
DODIX and MWTSX. Needless to say, they are underperforming so far this year.
You may need to say, because DODIX is at the 14th percentile so far this year, MTWSX is at the 42nd percentile. They have outperformed AGG (a proxy for the domestic investment grade bond market) by 0.93% and 0.26% respectively YTD.
These funds don't just invest in short term bonds, but across the maturity/duration spectrum, and also delve a little into junk (around 6% or so currently). You're right that generally to have generated significant positive returns YTD, a bond fund must have been short term (or shorter), or taken on more credit risk.
Normally, I'd say that the extra yield offered by a longer (read intermediate term) fund has a good chance of compensating for greater losses than a short term fund would experience due to rising interest rates. But currently the yield curve is fairly flat - 2 year treasuries yield 2.58%, 10 years 3.08%, and 30 years barely any more at 3.20%. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
An intermediate bond fund with, say a 5 year duration would lose 2.5% if there are a couple more (1/4%) rate hikes this year - that should pretty much eat up its SEC yield for the year. So for now (read: the next 2-3 rate hikes or the rest of the year), a short/ultra short term bond fund might be the better choice.
There is another alternative that meets your requirements. Buy 6 month treasuries - they currently yield over 2%, and after six months, if interest rates rise as expected, you can buy higher yielding treasuries or buy a bond fund at that time.
Regarding PONAX: 1) It's an excellent fund at what it does 2) Its performance is just about the same as DODIX YTD
3) While derivatives don't spook me, I am concerned that I can't explain its duration. On PIMCO's page for the fund, the duration for each sector of the fund is listed as under 3 years, yet it says that the effective duration for the fund as a whole is 4.13 years. Which is why I don't know how it is computing its numbers (i.e. I don't understand how its portfolio is acting as a whole, to lengthen its effective duration beyond that of all of its components). https://www.pimco.com/en-us/investments/mutual-funds/income-fund/a
@msf makes some good points. Playing the bond market isn’t my game. But a case can me made for going shorter duration for those who want to try to play the markets.
Dodge and Cox has been saying for several years that bonds didn’t look attractive (remember rates have risen since than). It takes just a bit of reading between the lines in their past several reports for DODIX and DODBX to discern that they felt at the time that equities were more attractively priced longer-term than bonds. And they have followed their own advice by overweighting equities relative to bonds in their balanced fund (DODBX).
That being said: While I’m glad they viewed the extremely low interest rates of recent years with a healthy dose of skepticism, I’m also fairly confident they’ll ride out the storm as rates turn up just fine. So, if you are a long term investor and liked the fund earlier, I see no reason to bail now.
Footnote - I did back off slightly from my holdings in DODIX over the past year anticipating the spike in rates. Moved the $$ to Price’s ultra-short. However, I use DODIX as a proxy for cash. So my use of the fund is a bit different from that of most DODIX investors.
Huh. When I go to Fido via private / incog browser session and also am not logged in, the result of search for PONAX says, as has been already reported:
This fund is now available NTF (No Transaction Fee) and offered load-waived through Fidelity
Also, I would have no qualms --- since I don't know anything about any bond inflection point after 30y or whatever it's been --- holding some mixture of FADMX, FTBFX, and FAGIX, mixed to comfort.
But I would probably hold DODIX and MWTSX instead of doing anything. You certainly can get individual bonds and CDs at Fido as well.
If you're getting the Fidelity quote page for PONAX that just says "No Transaction Fee" under the fund name, see Note 1 as indicated. You have to click the '1' to see it. The first words of Note 1 read like so:
No Transaction Fee funds are available without paying a transaction fee. No Transaction Fee funds will also be offered without a load or on a load waived basis.
Fidelity (and I assume other brokerages) offer many fund A shares load-waived. These days, it almost seems to be an exception when they aren't.
Anyone curious about SEMPX: have a look at the holdings. It's pretty diversified across the mortgage spectrum: a few agencies and some commercial in addition to the non-agencies. About the latter -- in contrast to IOFIX/IOFAX, it's spread about evenly between legacy and new issues, and only ~ 1/3 in subprime.
Short version: it's sort of reasonably balanced among the subsectors, so at least is somewhat diversified among specific risks.
This past week my bond funds began to find traction and were up about 0.82% which by my thinking was a good moved upward. Stocks, in general, were up about 0.30%. Are stocks now starting to go soft as we move into summer?
Comments
Regards,
Ted
I just transferred my other rollover IRA's from previous 401's over to Fidelity so I will have all funds centrally located and have access to more options.
About to turn 66 but will probably work a few more years as I enjoy the job and people.
Sure, I'd like to make more than 2% but I want to minimize risk. Of course, if you know of a way to get higher returns with low risk, I am all ears:)
I can’t say whether a bond fund is appropriate for you or where bonds are heading. But if you want and need a bond fund, I’d say stay with DODIX. Of course you can find more conservative bond funds - but they’re not going to generate the longer term returns DODIX might.
Return numbers for YTD are pretty meaningless over the longer stretch. Nothing goes straight up all the time.
0.93% and 0.26% respectively YTD.
These funds don't just invest in short term bonds, but across the maturity/duration spectrum, and also delve a little into junk (around 6% or so currently). You're right that generally to have generated significant positive returns YTD, a bond fund must have been short term (or shorter), or taken on more credit risk.
Normally, I'd say that the extra yield offered by a longer (read intermediate term) fund has a good chance of compensating for greater losses than a short term fund would experience due to rising interest rates. But currently the yield curve is fairly flat - 2 year treasuries yield 2.58%, 10 years 3.08%, and 30 years barely any more at 3.20%.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
An intermediate bond fund with, say a 5 year duration would lose 2.5% if there are a couple more (1/4%) rate hikes this year - that should pretty much eat up its SEC yield for the year. So for now (read: the next 2-3 rate hikes or the rest of the year), a short/ultra short term bond fund might be the better choice.
There is another alternative that meets your requirements. Buy 6 month treasuries - they currently yield over 2%, and after six months, if interest rates rise as expected, you can buy higher yielding treasuries or buy a bond fund at that time.
Regarding PONAX:
1) It's an excellent fund at what it does
2) Its performance is just about the same as DODIX YTD
3) While derivatives don't spook me, I am concerned that I can't explain its duration. On PIMCO's page for the fund, the duration for each sector of the fund is listed as under 3 years, yet it says that the effective duration for the fund as a whole is 4.13 years. Which is why I don't know how it is computing its numbers (i.e. I don't understand how its portfolio is acting as a whole, to lengthen its effective duration beyond that of all of its components).
https://www.pimco.com/en-us/investments/mutual-funds/income-fund/a
4) The fund is sold without a transaction fee and load-waived at Fidelity and elsewhere.
https://fundresearch.fidelity.com/mutual-funds/summary/72201F474
Dodge and Cox has been saying for several years that bonds didn’t look attractive (remember rates have risen since than). It takes just a bit of reading between the lines in their past several reports for DODIX and DODBX to discern that they felt at the time that equities were more attractively priced longer-term than bonds. And they have followed their own advice by overweighting equities relative to bonds in their balanced fund (DODBX).
That being said: While I’m glad they viewed the extremely low interest rates of recent years with a healthy dose of skepticism, I’m also fairly confident they’ll ride out the storm as rates turn up just fine. So, if you are a long term investor and liked the fund earlier, I see no reason to bail now.
Footnote - I did back off slightly from my holdings in DODIX over the past year anticipating the spike in rates. Moved the $$ to Price’s ultra-short. However, I use DODIX as a proxy for cash. So my use of the fund is a bit different from that of most DODIX investors.
This fund is now available NTF (No Transaction Fee) and offered load-waived through Fidelity
Also, I would have no qualms --- since I don't know anything about any bond inflection point after 30y or whatever it's been --- holding some mixture of FADMX, FTBFX, and FAGIX, mixed to comfort.
But I would probably hold DODIX and MWTSX instead of doing anything.
You certainly can get individual bonds and CDs at Fido as well.
No Transaction Fee funds are available without paying a transaction fee. No Transaction Fee funds will also be offered without a load or on a load waived basis.
Fidelity (and I assume other brokerages) offer many fund A shares load-waived. These days, it almost seems to be an exception when they aren't.
or use a different browser,
or launch a private / incognito session
go to fidelity.com
in the search field enter ponax
voila
Short version: it's sort of reasonably balanced among the subsectors, so at least is somewhat diversified among specific risks.