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DQOTD: How often do Vanguard Bond Fund Managers hold bonds to maturity?
Old 12-07-2013, 09:26 AM   #1
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DQOTD: How often do Vanguard Bond Fund Managers hold bonds to maturity?

I own big chunks of VBTLX & VFSUX (jeez, who chose that symbol?) and I understand how they will fare (short & long term) in the rising interest rate environment that's ahead of us (eventually). So like most everyone here, I am looking at diversifying my fixed income holdings with other options including the newish 'hold to maturity' bond funds like BulletShares and iShares. Then I wondered how often do Vanguard Bond Fund managers hold the bonds to maturity vs selling them off? IOW, how different are they from conventional bond funds (other than all same duration for 'hold to maturity'). I looked at the online info for VBTLX and if it's there, I haven't found it.

Anyone here know?

I've read they may be forced to sell if fund holders sell off in large numbers, but there are some safeguards there.

BTW, though the info has been posted many times here, another decent article on what to expect with bond funds http://www.schwab.com/public/schwab/...ates_rise.html
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Old 12-07-2013, 10:08 AM   #2
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Interesting question. I didn't find a direct answer, but related to this, they say that in the last year, they convert the maturing issues to a short term investment. The issues would mature at different times of the year, so they say you can't expect the full yield for that last year. Some suggested to get a maturity one year out from what you really want.

I'm guessing they simply don't expect many redemptions, so they either just accept some small early redemption risk (which could go either way), and/or hold some cash for that purpose.

I imagine most people who are buying something to hold to maturity must be planning to hold it to maturity. I suppose if rates go down, the value would go up, but if you cashed them in, what would you move it to? Like retirement target funds, I suspect it attracts true 'buy and hold' types.

Maybe call one of them Monday for an answer?

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Old 12-07-2013, 10:26 AM   #3
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If you look at the distribution for VFSUX it shows that each of the years between 1 and 5 the fund holds about 20% of the fund:

Under 1 Year 8.2%
1 - 3 Years 42.5%
3 - 5 Years 38.9%
5 - 7 Years 6.5%
7 - 10 Years 3.8%

However in year 1 (less than 1 year) there is only 8%. So they must be selling off at least 60% of the fund before it matures.
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Old 12-07-2013, 11:08 AM   #4
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If they are following an index, say Barclays Intermediate Gov/Credit Index 1-10 years, then in theory, they hold nothing under 1 year since the index has nothing under 1 year to maturity. I'd guess in practice they will hold some to maturity, but they'll have to sell some or most in order not to stray too far from the index.
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Old 12-07-2013, 11:10 AM   #5
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Delete - I misread the OP. - ERD50
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Old 12-07-2013, 11:24 AM   #6
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Quote:
Originally Posted by Midpack View Post
No, I am asking about conventional Vanguard bond funds (in comparison to 'hold to maturity' funds).
OK, sorry, I misread then.

I'll edit/delete my previous post.

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