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Old 07-07-2013, 05:32 PM   #61
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Originally Posted by Leon44 View Post
I'll use VBTLX to illustrate the point that I was trying to make:

On 1/1/2013 the NAV was $10.93 a share according to Yahoo finance historical data. It paid a dividend in January of .022 per share or 2.41% annually.

The current NAV 7/6/13 for VBTLX is $10.56 per share and still pays a dividend of .022 per share. But...now that same .022 is a 2.51% annual return.

If you have 5K shares you will receive a $110 dividend both in January and again in June.

But...the value of the holding is down -2.48% YTD. so your 5K shares loss $1,850 YTD. You received $660 in dividends through June....net loss of $1,190 YTD in VBTLX.

This is why NAV matters to me. I don't know if this is a blip in interest rates or if this will be the trend. I do know the NAV will be an indicator for me.

Nobody can deny bond funds have been great over the past, but remember we have been in a 30 year bond bull market.

Excellent example.
Now over time we would expect to see the dividend per share increase in the same way that VBTLX/BND distribution decreased from 2008 till 2013.

From 1938-1951 10 year treasuries hung around the 2.5% our current level. But historically 10 year treasuries around the 4-5% level other than the bout with inflation years from the late 60 until the mid 90s when rates went much much higher.

Now if all you worried about is the income flow from the bond fund, a reasonable approach for a retiree, than the drop in NAV shouldn't be a huge concern, as long as the distributions increase.

On the other hand even at the higher 2.51% rate it is pretty tough to fund a retirement with bonds. SPY is yielding 2.03% and while SPY dividends are unlikely to increase 20% like they did last year or 14 like they did in 2011. I high single digit growth is likely assuming the economy doesn't tank.
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Old 07-07-2013, 05:52 PM   #62
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Need to adjust calculations. VBTLX pays monthly.

2013 Dividends for Vanguard Total Bond Market Index Adm (VBTLX)
28-Jun-13 0.021 5000 $105.00
31-May-13 0.022 5000 $110.00
30-Apr-13 0.022 5000 $110.00
28-Mar-13 0.04 5000 $200.00
28-Feb-13 0.021 5000 $105.00
31-Jan-13 0.022 5000 $110.00
$740.00
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Old 07-07-2013, 07:53 PM   #63
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I don't even understand why NAV comes into the picture as it tends to be a fund byproduct. If you look at bonds, it's all about the yield and price. NAV just flows out from the constantly changing yield curves for companies and nations.

I'm no bond expert so that's just my current thoughts. When you read Bloomberg bond news, there is no talk about NAV's.
NAV of a bond mutual fund = the aggregate price of the bonds held by the fund (+/- a few other things that are typically inconsequential).

There is probably no talk about NAVs when you read Bloomberg bond news because they are talking about individual bonds or bond portfolios rather than mutual funds.
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Old 07-07-2013, 07:58 PM   #64
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....When Vanguard describes annual performance they don't show NAV's just: income return + cap gain return = Total Return
....

but capital gain return = end of period NAV - beginning of period NAV
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Old 07-07-2013, 09:06 PM   #65
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Common wisdom was saying this for months prior to May, the big jump has happened in the last 2 months. Looks like they were right.
Much wisdom in many posts, including those upthread.
1) Verem is right, I suspect (but don't know). The market recently may have overreacted, so if you are reacting to it now with big moves, you probably are mistiming. Or may be. But it is a wakeup call.
2) I was afraid of this for two years, so have gradually reduced duration and moved from intermediates to shortterm, cash, floating rate and similar. If I had the room in my taxables or wife's roll over IRA, I'd move a bond slice to Guggenheim bullet bonds, but that doesn't seem optimal; I'd rather place this in dividend stocks and closed-ends. I'm probably wrong on this active activity.
3) For those with a 20 year perspective, just rebalancing is the best idea. Those of you who said "do nothing" are right, from this perspective.
Barring that, rebalancing with a barbell strategy might be worth considering--realizing that the long term of the barbell may crush you if interest rates rise as you are opining. I reduced duration to move bonds more towards cash, with Emerging Market and High Income as the "barbell." I'll probably be proved wrong.

And barring that, moving some of the bond% DCA slowwwwly to floating rate and short term might make you feel better. That's what I did the last 2 years. Bonds still got crushed so that the portfolio is performing about 40% of the S&P but it could have been a lot worse without the moves above. That's after only two months of rate increases and YTD, so I don't think that's a good test of any strategy.

4) If you can tolerate the volatility--if--shifting some of your cash into dividend, particularly Euro or foreign dividend might be worth considering, DCA in particular. I'm doing a bit of that.

5) And I continue to consider my cash holdings as a percentage of my bond holdings.
This does not hold water on Allocations, but it is because I think we are 5 years or less from the bond peak, if we haven't seen it already. Cash is not trash, and will give you flexibility for balancing, either to underpriced bonds or stocks.
6) If you are in the position of building a bond ladder and reallocating bond mutual bunds to do so, consider doing so, although you do take on default risk. This is not a trivial risk, although the more you have to diversify in individual bonds, the safer you are.
If I were in the position to do so, I would do so, with 1/2 of my bond allocation and the point on cash above (#5) would be moot. A lot of my cash is in IRA/401ks in which I cannot buy individual bonds and using my taxable account funds for a bond ladder--I believe--is unwise.

This is a very good thread, and all posts should be considered before anyone does anything.
And my sense is that the market has already done most of its moves, shortterm, so this is kind of test case for what the next 5 years might hold, so it is very useful. I could be wrong here, and the selling could accelerate, but I think it has been a short-term overreaction to taper, although the long-term direction is clear. IMO, which is worth nothing to any of you.
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Old 07-07-2013, 09:08 PM   #66
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Originally Posted by pb4uski View Post
but capital gain return = end of period NAV - beginning of period NAV
We may all be getting confused by symantics. I think most would agree that total return is what it is all about (actually total real return). If one takes the NAV change and adds in the distribution yield then NAV is fine to use. Sound right?
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Old 07-07-2013, 09:48 PM   #67
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I'm maintaining my long-term zero percent allocation to bonds.
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Old 07-07-2013, 10:15 PM   #68
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Good thread. I've been hanging on to my municipal bond funds gritting my teeth mainly because it is less than a 20% allocation of all investable assets including my cash. I have a fair amount of cash out of the market. Started to route the income from these funds that are in my taxable account to my bank account at the beginning of the year (not the ones in my IRA's). If I sold them I would be giving up about $1,500 a month in tax free income generated just from the taxable account.
Haven't enjoyed watching the cap gains I had in them go south that is for sure. So far I'm slightly negative in some and still positive in some. But considering the tax free income I'm still positive overall. Just not as positive as I was.
I took the view (again gritting my teeth a bit) that I have "x" allocated to "tax free" muni's and it's generating "X" for me that is very similar to what my SSN payment would be if I took it at 62. So do I worry about the NAV and bail or just enjoy the tax free income and ride this thing? Couldn't answer my question so I've held on.

Like some others I think too much was made of the Fed's position and there may have been an over reaction to that.
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Old 07-07-2013, 11:13 PM   #69
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Originally Posted by Gatordoc50 View Post
http://m.pionline.com/gallery/201211...OW/112909999/3


Here is a link to an article that shows the general trend in the past year or so of public pensions reducing their bond allocation. I have also been studying individual states AA and have noticed a remarkable reduction in bonds in many of them.
Thank you.

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Old 07-08-2013, 08:56 AM   #70
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We may all be getting confused by symantics. I think most would agree that total return is what it is all about (actually total real return). If one takes the NAV change and adds in the distribution yield then NAV is fine to use. Sound right?
I agree that total return is king and I think the most common computation of total return is an annualized IRR considering the beginning fair value, cash flows (investments, distributions received, sales proceeds, etc) and the ending fair value. That is the way businesses approach it and also the way Quicken's investment performance report computes it.

For an existing position with no purchases or sales, converting the NAV change to an annual percentage rate and adding it to or subtracting it from the distribution yield is a reasonable approximation of total return.

You ask if it is "fine to use" - fine to use for what purpose?
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Old 07-08-2013, 09:32 AM   #71
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Hi Pb4uski, most of my NAV comments are directed towards the previous posts where there was a discussion of how people think of bonds. For my purposes the only calculation I do is the one equation shown in an above post on monthly return. That is used for other purposes not relevant to this thread.

Generally if I want to look at annual I'll look at M*'s numbers. I do try to remind myself that 1 year is a minimum in looking at performance comparisons, unless something radical has changed.
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Old 07-08-2013, 03:00 PM   #72
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And than we had today, close to gaining what was lost on Friday.

bonds.JPG
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Old 07-08-2013, 08:20 PM   #73
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Nope, no changes to my bond fund holdings.

My positions in psssst Wellesley and DODIX remain the same.

I did stop DCA to VWITX and VMLTX last fall only because I had hit the target principal I had wanted to get to in each fund. I was successful in diversifying my overall bond fund duration.

I still have a very healthy stake in VWALX, a bond fund held strictly for the purpose of generating monthly TE income to cover any unforeseen jumps in my property taxes, to bolster my emergency fund after a big ticket purchase, and/or to buy more BHP when the price is right. When I draw my own deferred FERS pension in 1 year and 2 months, I may revisit what I am doing with those dividends. Always flexible...
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Old 07-09-2013, 03:25 PM   #74
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I have been receiving the monthly dividend each month and reinvesting it back into the Vanguard High Yield Bond fund. I bought the shares at the mid $4 level and it has had great nav appreciation as well as the dividend, initially the yield was a little over 12%. So I checked the balance on 12/31/12 and 6/30/13. I'm actually down a few hundred dollars due to nav loss. At 1 pm I exchanged it all into the Prime Money Market fund and when there's a decent pull back I'll move it into the Total Stock and Total International Stock Market funds. I've always know this day was coming but even with a 4.2 or 4.4% yield in my Roth I thought it was worth holding.
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Old 07-09-2013, 04:03 PM   #75
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I sold my VWEHX as well. I wanted to keep some exposure to corporate bond high yield so I bought FAGIX. A quick comparison:

VWEHX is down YTD by -.45%. FAGIX is up YTD by +2.13%
VWEHX yield is now 6.10% - FAGIX is 5.21%
VWEHX Duration 4.34 YRS - FAGIX is 3.66 Years
VWEHX has a lower ER at .23 compared to .77 for FAGIX.

This isn't a recommendation or endorsement because I am not qualified ( or paid to give them. Just what I did....
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Old 07-09-2013, 05:23 PM   #76
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fagix is not a pure high yield fund either . they buy distressed stocks too. they react more like a stock fund then a bond fund.
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Old 07-09-2013, 05:42 PM   #77
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Maybe that is why it is performing better year to date I don't agree that it is more of a stock fund...it has 81.85 of it's holdings in bonds and only 11.48% in stocks. It is categorized the same as VWEHX..."High yield bond" and they both buy "junk" and have high percentages of returns.


I'm sure there are better high yield bond funds out there. This has 4 of 5 Morningstar ratings...That is why I was clear when I stated "Just what I did" .
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Old 07-09-2013, 05:53 PM   #78
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the others don't buy stocks though at all.. fagix is a special situation fund. as of 6/1 it was 14% distressed equities.

it also has 19% in BB , 41% IN B AND 18% IN CC.. that is very very aggressive.

i own it and have a considerable amount of money in it. i use it as a proxy for a conservative stock fund.

i just wanted to make sure you knew it is unique and unto itself.
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Old 07-09-2013, 06:15 PM   #79
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Yes I was aware of the equities. The fact that it is not a "pure" 100% bond only fund does not bother me. I do include it as bonds in my AA. I figure if the big boys categorize it as a high Yield Bond fund that is good enough for me.

I have also owned FAGIX for a while. I just added to it. Relatively speaking I have been pleased with FAGIX.

Thanks for the insight. It's always good to get other investors perspectives.
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Old 07-09-2013, 06:20 PM   #80
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I don't know these bond fund symbols, and I am not interested enough to look them up=but I do wonder why anyone would want high yield exposure when spreads to treasuries are close to lows. By what has been preforming? That technique has a spotty long term success record.





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