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Bond Mavens- Vanguard Question
Old 03-30-2006, 05:35 PM   #1
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Bond Mavens- Vanguard Question

Hi

My wife has an IRA and a 403b invested in Vanguard Inflation Protected Fund, VIPSX. I went to the website to read up on it. It claims a real yield as of today of 1.9%; an average duration of 6.2 years, and an expense ratio of 0.17%.

Meanwhile, according to Bloomberg last night, the 5 yr TIP is yielding 2.21% real; and the 10 year TIP 2.30%.

It seems to me that there must be a yield leak at Vanguard. Given a .17% expense, shouldn't their yield be at least 2.03%?

Maybe I don't understand how they report yield.

Any help?

Ha
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Re: Bond Mavens- Vanguard Question
Old 03-30-2006, 05:43 PM   #2
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Re: Bond Mavens- Vanguard Question

I suspect the difference has to do with the construction of the portfolio. The real yield curve is pretty flat from 5-20 years but I think pretty steep from 0-5 years. The Inflation Protected Securities Fund has about 26.5% of the portfolio in the 0-5 year range with a little more than 6% in the 0-3 year area. The loss of yield on this front end, and the absence of yield pick-up on the back end, probably explains the difference.

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Re: Bond Mavens- Vanguard Question
Old 03-30-2006, 06:10 PM   #3
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Re: Bond Mavens- Vanguard Question

Quote:
Originally Posted by 3 Yrs to Go
I suspect the difference has to do with the construction of the portfolio.* The real yield curve is pretty flat from 5-20 years but I think pretty steep from 0-5 years.* The Inflation Protected Securities Fund has about 26.5% of the portfolio in the 0-5 year range with a little more than 6% in the 0-3 year area.* The loss of yield on this front end, and the absence of yield pick-up on the back end, probably explains the difference.
I see what you are saying. Thanks for the very clear explanation.

Ha
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Re: Bond Mavens- Vanguard Question
Old 03-30-2006, 06:12 PM   #4
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Re: Bond Mavens- Vanguard Question

Ha, real yields are up a bit recently. * Last month they were closer to 2%. * Vanguard reports the SEC Yield, which is a 30-day average, so that may explain why it's a bit lower than the current yield.
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Re: Bond Mavens- Vanguard Question
Old 03-30-2006, 07:29 PM   #5
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Re: Bond Mavens- Vanguard Question

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Originally Posted by wab
Ha, real yields are up a bit recently. * Last month they were closer to 2%. * Vanguard reports the SEC Yield, which is a 30-day average, so that may explain why it's a bit lower than the current yield.
Thank you Wab. I don't really understand SEC yield, as I have not been a mutual fund investor. I guess what you are telling me is that when rates are rising, a 30 day everage will necessarily be below today's rate.

I'll read about SEC yield.

Ha
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