It appears that interest rates are going to rise, when and or how much is the question. Assuming this is true, what bond funds do you think will be able to adjust to this new scenario, when it does occur? I personally am in my early seventies and my portfolio stays around 50% cash and bonds and 50% stock index funds with no need to take excessive risk. For whatever reason, I can handle stock volatility better than bond fund price decreases. If you are retired, what are you doing with the bond side of your portfolio?
Comments
https://reuters.com/article/us-usloan-2018/u-s-loan-funds-remain-appealing-in-2018-as-fed-hikes-rates-idUSKBN1F62G7
Like many things in life, there’s no easy answer to the dilemma of rising rates and need for income. Really a pick-your-poison situation. But others on the board more informed than me have suggested some good PIMCO and DoubleLine funds that cut across fixed-income asset classes. Sounds reasonable to me. Both companies have some good offerings. I’ve gained a lot of respect for Gundlach even though I don’t own his funds.
As I’m mainly at T. Rowe and D&C I use RPSIX and DODIX. The latter has been positioned very short for several years anticipating a rate rise. Savvy investors. But this fund still could easily fall 2 or 3 percent in a year or even more if rates really heat up. My small venture recently into a gnma fund is probably crazy. What I see here is govt. backed paper in case of an equity collapse and rates a point or more over what an intermediate treasury fund will earn. Also (self excluded) I’d think the gnma investor is a more stable lot - meaning less hot money to flee (and further damage the fund) during a steep pullback than with a treasury fund.
Regards,
Ted
https://www.reuters.com/article/us-usloan-2018/u-s-loan-funds-remain-appealing-in-2018-as-fed-hikes-rates-idUSKBN1F62G7
You might take a look at FPNIX. The managers of this fund (first Rodriguez, now Atteberry) use somewhat esoteric devices (e.g. credit enhanced ABSs for credit risk protection, Interest Only (IO) bonds to reduce duration) to reduce, not increase, risk. This fund has not lost money at in any calendar year going back at least to 1992.
Its current SEC yield (as of 12/31/17) is 2.84%, and current yield to worst (i.e. assuming every bond in the portfolio actually yields the worst possible amount) is 2.95%. Its duration is just 1.5 years, and it's investment grade (M* puts it at BBB, almost 90% are A or better).
FPINX fact sheet: http://www.fpafunds.com/docs/fund-fact-sheets/fpa-new-income-factsheet-2017-12.pdf
If you like CDs, and are a veteran or a relative of a veteran, you might look at Navy Fed - it's offering a 15 month CD paying 2.25%. It offers the flexibility of adding money, but only up to $50K.
https://www.navyfederal.org/products-services/checking-savings/certificates.php
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Also, the media often promotes a misconception that the FOMC “sets” long-term rates. They do not. What they “set” is the overnight lending rate that banks charge one another on overnight loans. Yes, this and other Fed actions may affect longer term rates. But the result is not always as expected. For example, if it pushed short term rates too high it could actually have the opposite effect on the longer end, causing the 10-year or 30-year rate to fall in anticipation of a recession.
BBBMX EALDX LALDX THOPX
Regards,
Ted
https://money.usnews.com/funds/mutual-funds/rankings/short-term-bond
BBBMX: Not Ranked
EALDX: #2
LALDX: #16 (I've owned from time to time.)
THOPX: #3
I sold three of my bond funds yesterday ... FMTNX ... LALDX ... and, THIFX. And, redeployed most of the capital into BAICX ... CTFAX ... and, PMAIX along with sending some to my cash sleeve for perhaps another spiff.
This leaves my income sleeve holding the following funds: BAICX, CTFAX, GIFAX, LBNDX, NEFZX & TSIAX. Interestingly, a little better than 80% of the sleeve remains invested in bonds from a review of the ticker symbols and their weightings inputed into Instant Xray for analysis. These changes, by my thinking, should help better position the sleeve for a rising interest rate environment. Some noteworthy features of the sleeve are a yield of 3.75%, average duration of 2.6 years and average maturity of 5.35 years along with the prior 12 month total return found to be 4.75%. Currently, PMAIX is held in my global hybrid sleeve found in the growth & income area of the portfolio. This sleeve also holds CAIBX and TIBAX.
All three of the funds that I sold (FMTNX, LALDX & THIFX) had nav negative growth over the past 1, 3 & 5 year periods. In short, their yield was greater than their ability to produce same. I'm with @MikeM as I'm thinking CD's are currently a better deal presently over most short term bond funds.
Here is a link to the one, three and five year performance for LALDX. Notice its yield of 3.70% is greater than its return numbers which are listed at 1 year @ 1.54% ... 3 year @ 1.98% ... and, 5 year @ 1.87%.
http://www.morningstar.com/funds/XNAS/LALDX/quote.html
A couple of Lord Abbett income funds that I own and have been able to produce their yield (and more) are LBNDX (Lord Abbett Bond Debenture) and ISFAX (Lord Abbett Multi Asset Income). ISFAX has a yield of 3.58% with 1 year performance listed at 6.17% ... 3 year @ 4.25% ... and, 5 year @ 5.03%. LBNDX has a yield of 4.15% with 1 year performance listed at 5.69% ... 3 year @ 5.36% and 5 year @ 5.75%. Thus they have produced their yield and then some.
When an income fund can not make it's distribution for a good number of years, from my perspective, it's time to let it go and I did. This is the reason I no longer hold LALDX ... FMTNX ... and, THIFX. I'm thinking it will only get worse for these funds as interest rates rise so I let them go.
Old_Skeet
MikeM, I don't follow your line of thinking. If interest rates are rising, and the rates that CDs are paying will be going up, how is it that bond rates won't be going up as well?
https://money.usnews.com/funds/mutual-funds/ultrashort-bond/bbh-limited-duration-fund/bbbix
https://money.usnews.com/funds/mutual-funds/rankings/ultrashort-bond
Regards,
Ted
Look at the performance of BBMX, 1.7% return over the last 3 years, 1.3% over the last 5. With rising interest rates short term bond funds will be challenged to make even that return going forward. In comparison, CDs are now paying 2% for 1 year and up to 3% for 5 years. And the point here, I think, is if you create a CD ladder where you are converting CDs periodically as they mature into a CD market of risings interest rates it's a win-win investment as compared the short term bonds that will be affected negatively with rising rates.
This maybe wasn't true a year ago, but I think the time has come. Eliminate volatility and a guess on return completely and CD ladder into a rising return. That of course is just my opinion.
By the way, this is what I'm going to do with the money I'm bucketing for retirement withdrawals. I happen to choose Synchroney Bank to set up my money market/CD IRA, but there are many good on-line options available.