Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I'm moving my 401K from one employer plan to another and it allows me to invest in Fidelity's brokerage, all funds. I'm looking for a bond fund that may act as a substitute for DODIX, which is a TF fund at Fidelity. I own DBLTX and PIMIX already, so I'm looking for something to offset them with more treasuries, corporates and higher quality holdings. Thanks in advance.
Will...I went through a similar process as you, and ended up pairing PIMIX, DBLTX along with WATFX and PTIAX. These 4 serve as the core of my bond holdings.
BIV beats MWTRX ytd, 3 and 5 years. The other recommendations are not what you're looking for (vanilla high quality corporates and treasuries). If you want a higher yielding bond fund with great performance, go for PIMIX. A no brainer and one of my largest holdings. BUT do not expect PIMIX to hedge stock market risk. It won't serve that function.
I'm looking for something that focuses on higher quality bonds when compared with PIMIX. As you said, PIMIX tends to correlate with the overall equity markets when compared with something like BIV or even DBLTX.
Pretty hard to beat BIV in this space, and doing so would be a lucky guess that could go the other way. It's #1 on MS ytd, 1yr, 3yr and 5yr. Only one down year since 2008 and that was down 3.58 in 2013. It was up in 2008 (my gold standard for a quality bond fund). Good luck.
Looking at cumulative returns (1, 3, 5 year) is good, but it's also informative to look year by year. If the last year has been particularly good (or bad), it can skew all the numbers. Just look at Sequoia (SEQUX).
As with that fund, if the last year is out of line, you have to ask - is this an anomaly, or does it represent the way the fund is being managed going forward?
BIV has done well in the past year because, as John Bogle has said, it's overweighted in Treasuries (more than half). A managed fund is not going to hold that much in Treasuries - yields are just too low, with too great an expectation that they'll go up (or at least not go down). So in that sense, I consider last year's relative performance an anomaly.
Since we're looking at 1,3, 5 year returns and looking for a replacement for DODIX, it seems worthwhile to compare MWTRX with DODIX over those periods. MWTRX wins every one of them. So by that metric, it seems like a good replacement.
Curiously, while MWTRX holds over 1/4 in Treasuries, DODIX holds virtually none (though it is about 1/2 in high grade corporates). I do consider DODIX the more conservative of the two funds, with low turnover (24% vs. 246%), slightly shorter maturity, and because it seems to hold more premium bonds, lower duration as well. But both funds are excellent in their own ways.
Since the motivating factor seems to be avoiding the $5/transaction charge for buying more shares (at Fidelity once you have a position, adding more with AIP costs $5), BIV would appear to be out as well. That costs $7.95 at Fidelity to add shares, and you can't even add a fixed dollar amount (you have to buy a whole number of shares).
Well, the performance of BIV dates back to 2008, it's not just what happened lately. It beat the funds you mentioned over the last 5 yrs. In 2013 when treasuries got killed (TLT down 13.37%) it is true that BIV had its "worst" year ever, it's ONLY down year, and was down a mere 3.58%. I'm not getting paid a commission here, but the facts are the facts. It is somewhat likely that good multi-sector funds will outperform BIV over the longterm, but the OP had a specific request, and quite a valid one IMO. You need something like BIV in your portfolio, perhaps now more than ever.
MWTRX is one I've considered, but goodness--- the dividends are paltry.
Crash, div may look paltry because it is mostly high quality bonds. 70% rated AAA, 85% of the portfolio is A or above. On the other hand DFLNX is 53% and 67%. If you want more div you take on more risk. Always a trade off.
And total return is the measuring stick here unless you are using the dividends for income. Comparing MWTRX and DLFNX, return is pretty much even for 1, 3 and 5 year returns.
To repeat my point, what happened lately (if there's a sizeable performance difference) distorts comparisons in all time frames. If it's not just what happened lately, let's throw out the past year (4/1/15 - 3/31/16) and run those figures again (e.g. 5 years 4/1/2010 - 3/31/2015):
Cumulative BIV MWTRX 1 year 10.69% 10.54% 3 years 11.25% 11.66% 5 years 13.43% 13.52%
"OP had a specific request, and quite a valid one IMO" Yes, a "bond fund that may act as a substitute for DODIX, which is a TF fund at Fidelity". BIV has transaction fees at Fidelity that are even higher than those for DODIX.
"You need something like BIV in your portfolio, perhaps now more than ever." What does something "like" BIV mean, and why do you need something like that now more than ever?
In the context of the OP's request (with treasuries first on the list), I took note that BIV is heavily weighted in Treasuries. So if by "something like BIV" you mean something loaded with treasuries, why not a treasury (or more broadly, a government) bond fund? That would at least give one the ability to tweak allocations (by adding/selling some of the fund, especially in the tax-sheltered account).
Why now more than ever, when treasuries have had an extremely long run, and BIV has a longer duration than almost any other intermediate bond fund? (Out of 214 distinct intermediate term bond funds for which M* has duration figures, BIV/VBILX/VBIIX has the fourth longest.)
It is true that BIV (because of its large treasuries weighting) did well in 2008. Sovereign debt (such as treasuries) was virtually the only asset class that gained then. Are there other times where that's been true, or is stocking up on treasuries a Maginot line?
With numerous Fed members making statements implying rate rises in the near term need to go up, SAMBX/GIFAX is getting my attention. We had a short window of opportunity to buy CEF's with 10% yields at large discounts during the oil sell off. I bought some and they are up 9% from purchase price.
I'm not too focused on yield because I own PIMIX and DBLTX. I'm more interested in a fund that covers a particular area of the bond market, namely treasuries and corporates. I also own munis so I have that area covered.
PIMIX and DBLTX are fine complements. PIMIX tends to short long-duration Treasuries and owns more credit-like positions like non-agency RMBS and EM bonds. DBLTX tends to go long duration and mixes agency MBS with non-agency MBS. Both have had excellent risk-adjusted returns and both owe a lot of their fine returns to betting heavily on non-agency RMBS.
DODIX is more of a credit fund. Its risk-adjusted returns aren't remarkable.
BIV's returns can be almost wholly attributed to its greater duration and credit exposure.
MWTRX has been the biggest recipient of inflows since Gross left PIMCO. Its returns have deteriorated as assets ballooned. MWTRX has historically earned most of their money through security selection rather than macro timing so I suspect their capacity is lower than a macro-oriented shop like PIMCO.
PIMIX and DBLTX are fine complements. PIMIX tends to short long-duration Treasuries and owns more credit-like positions like non-agency RMBS and EM bonds. DBLTX tends to go long duration and mixes agency MBS with non-agency MBS. Both have had excellent risk-adjusted returns and both owe a lot of their fine returns to betting heavily on non-agency RMBS.
DODIX is more of a credit fund. Its risk-adjusted returns aren't remarkable.
BIV's returns can be almost wholly attributed to its greater duration and credit exposure.
MWTRX has been the biggest recipient of inflows since Gross left PIMCO. Its returns have deteriorated as assets ballooned. MWTRX has historically earned most of their money through security selection rather than macro timing so I suspect their capacity is lower than a macro-oriented shop like PIMCO.
With regard to BIV, I'm thinking you mean the fund's lack of credit exposure? It is not a credit sensitive fund. Rather, it would most likely be impacted more by interest rate hikes. It's average credit quality is A according to *M.
BIV is not a very credit sensitive fund, but it has noticeably more credit exposure than the Barclays Agg. During the financial crisis the mutual fund lost more than the Agg and fell about as much as DODIX in the Q4 2008. The fund currently has about 39% in Baa bonds v. 26% for the Barclays Agg and has a lower government bond stake.
To repeat my point, what happened lately (if there's a sizeable performance difference) distorts comparisons in all time frames. If it's not just what happened lately, let's throw out the past year (4/1/15 - 3/31/16) and run those figures again (e.g. 5 years 4/1/2010 - 3/31/2015):
Cumulative BIV MWTRX 1 year 10.69% 10.54% 3 years 11.25% 11.66% 5 years 13.43% 13.52%
You're kidding right? If I "throw out" the last year of TDVFX I'd have a 5 star fund with an unreal record....instead of one that was down 25% YTD just a few weeks ago. If you "throw out" the last 5 minutes of the NY Football Giants games this season they'd have been the first seed in the playoffs, instead of missing the playoffs and firing their Hall of Fame bound coach. So what? The record is what it is.
And of course interest rates can fall even from here. And anything less than investment grade might get crushed. The argument you made re interest rates is the same one that has been made for years now, and it's been a very bad bet.
BIV is not a very credit sensitive fund, but it has noticeably more credit exposure than the Barclays Agg. During the financial crisis the mutual fund lost more than the Agg and fell about as much as DODIX in the Q4 2008. The fund currently has about 39% in Baa bonds v. 26% for the Barclays Agg and has a lower government bond stake.
Maybe we are looking at different websites but *M shows BIV as currently having 57% in AAA rated bonds, 16% with A rating and and 23% in BBB rated bonds. Based on these numbers, the fund does not appear to be credit sensitive overall. The duration is on the high end for an intermediate fund (6.5 years) so I do believe it has more risk on the interest rate side.
BIV/VBILX/VBIIX also has noticeably more treasury exposure than AGG. It's basically AGG if you restrict in two ways: 1) limit to intermediate term bonds (those with maturities in 5-10 years), and 2) remove securitized bonds (about 1/4 of AGG).
The government and corporate portions increase proportionately, so there is more government bond and more corporate bond exposure. The latter resulting in an increase in credit exposure (relative to the MBS's it is replacing).
However, an MBS will generally yield more than a comparably rated corporate bond. That's because the MBS has extension/prepayment risk (which I view as a variant of interest rate risk). "To quote a Wall Street adage, a mortgage-backed security 'goes up like a two-year bond' when rates fall and 'goes down like a six-year bond' when rates rise." See negative convexity.
So if one swaps MBS for corporate, it is necessary to go down the credit ladder just to maintain yield. To put it another way, just because the credit rating has gone down doesn't mean that the yield has gone up - the rating may have dropped just enough to compensate for the inherently lower-yield of corporates.
The bottom line is that while it is true that there's more credit risk than AGG, without quantifying that difference it isn't clear that this is a factor that's increasing the yield. Even if the credit rating difference is large enough to increase yield, the resulting yield increase isn't as sizeable as the credit difference would seem to make it at first blush.
@willmatt72 Baird funds are available on a NTF basis @ Fidelity. They're a pretty caution bunch and will keep you in a lot of investment-grade stuff, even with their Core Plus Bond fund (BCOSX). They also showed some good defense in 2008-2009.
MWTRX would be acceptable, except I would be very concerned with asset bloat, if not now then in the near future. The fund has ballooned to $72B. Despite their expressed concerns re. liquidity and their near paranoia re. rising interest rate risk, they haven't expressed the slightest concern with their exploding AUM. Seems contradictory to me.
I agree that asset bloat is a potential problem, but more to watch out for than a reason to rule out MWTRX now - especially in a tax-sheltered account where switching funds is painless.
Which raises another fact. A few years ago, the MetWest team took on managing the TCW funds when MetWest was acquired by TCW. IMHO that was the time to have been concerned about asset bloat at MetWest. Big percentage jump in assets while also having to deal with significant outflows.
Comments
Regards,
Ted
As with that fund, if the last year is out of line, you have to ask - is this an anomaly, or does it represent the way the fund is being managed going forward?
BIV has done well in the past year because, as John Bogle has said, it's overweighted in Treasuries (more than half). A managed fund is not going to hold that much in Treasuries - yields are just too low, with too great an expectation that they'll go up (or at least not go down). So in that sense, I consider last year's relative performance an anomaly.
See how Treasury funds have done relative to any other taxable bond funds here:
http://news.morningstar.com/fund-category-returns/ (sort on 1 year returns)
Since we're looking at 1,3, 5 year returns and looking for a replacement for DODIX, it seems worthwhile to compare MWTRX with DODIX over those periods. MWTRX wins every one of them. So by that metric, it seems like a good replacement.
Curiously, while MWTRX holds over 1/4 in Treasuries, DODIX holds virtually none (though it is about 1/2 in high grade corporates). I do consider DODIX the more conservative of the two funds, with low turnover (24% vs. 246%), slightly shorter maturity, and because it seems to hold more premium bonds, lower duration as well. But both funds are excellent in their own ways.
Since the motivating factor seems to be avoiding the $5/transaction charge for buying more shares (at Fidelity once you have a position, adding more with AIP costs $5), BIV would appear to be out as well. That costs $7.95 at Fidelity to add shares, and you can't even add a fixed dollar amount (you have to buy a whole number of shares).
And total return is the measuring stick here unless you are using the dividends for income. Comparing MWTRX and DLFNX, return is pretty much even for 1, 3 and 5 year returns.
To repeat my point, what happened lately (if there's a sizeable performance difference) distorts comparisons in all time frames. If it's not just what happened lately, let's throw out the past year (4/1/15 - 3/31/16) and run those figures again (e.g. 5 years 4/1/2010 - 3/31/2015): Here's the source: 1 year, 3 year, 5 year
"OP had a specific request, and quite a valid one IMO"
Yes, a "bond fund that may act as a substitute for DODIX, which is a TF fund at Fidelity". BIV has transaction fees at Fidelity that are even higher than those for DODIX.
"You need something like BIV in your portfolio, perhaps now more than ever."
What does something "like" BIV mean, and why do you need something like that now more than ever?
In the context of the OP's request (with treasuries first on the list), I took note that BIV is heavily weighted in Treasuries. So if by "something like BIV" you mean something loaded with treasuries, why not a treasury (or more broadly, a government) bond fund? That would at least give one the ability to tweak allocations (by adding/selling some of the fund, especially in the tax-sheltered account).
Why now more than ever, when treasuries have had an extremely long run, and BIV has a longer duration than almost any other intermediate bond fund? (Out of 214 distinct intermediate term bond funds for which M* has duration figures, BIV/VBILX/VBIIX has the fourth longest.)
It is true that BIV (because of its large treasuries weighting) did well in 2008. Sovereign debt (such as treasuries) was virtually the only asset class that gained then. Are there other times where that's been true, or is stocking up on treasuries a Maginot line?
DODIX is more of a credit fund. Its risk-adjusted returns aren't remarkable.
BIV's returns can be almost wholly attributed to its greater duration and credit exposure.
MWTRX has been the biggest recipient of inflows since Gross left PIMCO. Its returns have deteriorated as assets ballooned. MWTRX has historically earned most of their money through security selection rather than macro timing so I suspect their capacity is lower than a macro-oriented shop like PIMCO.
The government and corporate portions increase proportionately, so there is more government bond and more corporate bond exposure. The latter resulting in an increase in credit exposure (relative to the MBS's it is replacing).
However, an MBS will generally yield more than a comparably rated corporate bond. That's because the MBS has extension/prepayment risk (which I view as a variant of interest rate risk). "To quote a Wall Street adage, a mortgage-backed security 'goes up like a two-year bond' when rates fall and 'goes down like a six-year bond' when rates rise." See negative convexity.
So if one swaps MBS for corporate, it is necessary to go down the credit ladder just to maintain yield. To put it another way, just because the credit rating has gone down doesn't mean that the yield has gone up - the rating may have dropped just enough to compensate for the inherently lower-yield of corporates.
The bottom line is that while it is true that there's more credit risk than AGG, without quantifying that difference it isn't clear that this is a factor that's increasing the yield. Even if the credit rating difference is large enough to increase yield, the resulting yield increase isn't as sizeable as the credit difference would seem to make it at first blush.
MWTRX would be acceptable, except I would be very concerned with asset bloat, if not now then in the near future. The fund has ballooned to $72B. Despite their expressed concerns re. liquidity and their near paranoia re. rising interest rate risk, they haven't expressed the slightest concern with their exploding AUM. Seems contradictory to me.
As a reference point, posts here have had only positive words about DBLTX (OP holds it, PRESSmUP wound up with it, Samuel spoke of it as a fine fund). It now holds $57.6B, with DoubleLine as a whole taking in $10B in the past quarter (total $95B AUM).
http://www.mutualfundobserver.com/discuss/discussion/26816/gundlach-s-doubleline-capital-grew-to-95-billion-in-march
Which raises another fact. A few years ago, the MetWest team took on managing the TCW funds when MetWest was acquired by TCW. IMHO that was the time to have been concerned about asset bloat at MetWest. Big percentage jump in assets while also having to deal with significant outflows.