bond funds

[ripper1]

Thoughts on DODIX. I am considering moving half of my stable value fund here. The stable fund is earning a shade under 3% but DODIX has done well the past year earning almost 7%.

 

[audreyh1]

Those recent gains are due to the drop in interest rates over the past 6 months, not likely to be repeated soon unless we enter a recession, and in that case corporate bonds, which DODIX owns a lot of, may suffer a bit. In other words, you have most likely already missed the boat.

Don’t pick a bond fund by recent gains expecting them to continue. Rather, look at credit quality, duration, and expense ratio and how it fits with your other investments. You can also look at how well the fund has held up during stock downturns.

 

[corn18]

I have most of my 40% AA in DODIX (0.42% ER), but only because that is the best option in my 401k. If I had a choice, it would be in a VG or FIDO total bond index fund with a much lower ER. As audreyh1 pointed out, the recent performance of DODIX is due to falling rates which has benefited all bond funds a lot and presented headwinds for stable/MM funds. When interest rates rise, stable/MM will benefit and bond funds NAV will not. But NAV is only a piece of bond fund performance, so make sure you match your duration with need.

 

[imoldernu]

Timely? This morning's lead article.https://www.marketwatch.com/story/bond-market-on-verge-of-tripping-a-signal-that-could-lead-to-sharp-sell-off-2019-07-16

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Bond market on verge of tripping a signal that could lead to sharp sell-off

 

[ripper1]

Thanks, I think I will stay in Stable and CD's. Although I still have 10% in VBTLX.

 

[audreyh1]

Thanks, I think I will stay in Stable and CD's. Although I still have 10% in VBTLX.

Nothing wrong with having money in VTBLX - that’s a great core bond fund. I have plenty invested in bond funds, and I’ve owned them for decades, rebalancing into and out of them as required to maintain my AA. I was just arguing against buying into a specific bond fund based on very recent performance.

Actually I do own a good chunk in DODIX and have for a very long time. But I have been gradually shifting to the Fidelity version of VTBLX (FXNAX) because DODIX credit quality is a bit lower than what I want.

 

[Dtail]

Thanks, I think I will stay in Stable and CD's. Although I still have 10% in VBTLX.

I assume your stable value fund is in your 401k, as is the bond fund choices.
One point, is I would always keep a 401k and not roll it to an IRA or use those funds, as one usually gets solid stable value returns not available in IRA'S.

My Stable Value fund is currently 3.83% net of fees.

 

[ripper1]

I assume your stable value fund is in your 401k, as is the bond fund choices.
One point, is I would always keep a 401k and not roll it to an IRA or use those funds, as one usually gets solid stable value returns not available in IRA'S.

My Stable Value fund is currently 3.83% net of fees.

Yes, it is in a 457k account. Currently it is 2.98% net of fees. I remember years ago it was around 12% believe it or not. Getting that rate back then kept me solely in that fund.

 

[Marc]

Actually I do own a good chunk in DODIX and have for a very long time. But I have been gradually shifting to the Fidelity version of VTBLX (FXNAX) because DODIX credit quality is a bit lower than what I want.

Why FXNAX instead of FTBFX? I know fees are a lot lower with FXNAX but performance over last 3, 5 and 10 years (which I assume is net of fees) is much higher with FTBFX. This is more than idle curiosity as I have over $1.3M in FTBFX. I have considered purchasing bonds (both treasuries and corporate) at a rate of $100K per year to eventually create a good bond ladder instead of FTBFX but haven't pulled the trigger yet.

Marc

 

[gwraigty]

My husband's HSA with Payflex sent an email that VBLTX was removed as an option because of a new purchase fee that Vanguard implemented a few days ago. I verified this at Vanguard's website. Existing money invested will be converted to VBLAX on July 22nd. We were in DODIX for awhile and changed because I thought VBLTX was better. Back to DODIX possibly now for new purchases.

 

[audreyh1]

Why FXNAX instead of FTBFX? I know fees are a lot lower with FXNAX but performance over last 3, 5 and 10 years (which I assume is net of fees) is much higher with FTBFX. This is more than idle curiosity as I have over $1.3M in FTBFX. I have considered purchasing bonds (both treasuries and corporate) at a rate of $100K per year to eventually create a good bond ladder instead of FTBFX but haven't pulled the trigger yet.

Marc

Because FTBFX is not an index fund and does not track the Agg. A lot of people make this mistake. Note that it does not have Index in the fund name. FTBFX uses the “Bloomberg Barclays U.S. Universal Bond Index” as a “guide” for allocation and as a benchmark, but does not track anything. It is an actively managed bond fund.

The fund seeks to outperform the Barclays U.S. Universal Bond Index by shifting its holdings around to eke out additional gains and income. The fund is actively managed and invests in Treasuries, U.S. corporate bonds, and high-yield and emerging-market debt.

FXNAX is the index fund equivalent of VTBLX which both track the US Aggregate Bond Index which has a very long history and is very high quality investment grade. It has a much lower expense ratio than FTBFX, has higher credit quality.

Personally, I choose a bond fund that behaves better when the stock market drops (has lower correlation to stocks), so I prefer the higher credit quality. FTBLX holds more corporate bonds plus high yield bonds and emerging market debt resulting in lower average credit quality, and thus does not behave as well during economic downturns. I don’t choose my bond funds based on higher performance - that tends to push one to riskier fixed income.

 

[Dtail]

Yes, it is in a 457k account. Currently it is 2.98% net of fees. I remember years ago it was around 12% believe it or not. Getting that rate back then kept me solely in that fund.

Even if you received ~3% for the rest of the year for your bond allocation, that still sounds fairly good for a near riskless investment.
Bond funds are not likely to return 6% for the rest of the year, unless rates are dropping to new all time lows.....

 

[audreyh1]

VBLAX is a long-term Bond Index fund which means it’s far more sensitive to interest rate changes. I prefer intermediate.

 

[mrfeh]

Don’t pick a bond fund by recent gains expecting them to continue.

+1000

This is called performance chasing. Just use a total bond fund.