indexing bonds

[perinova]

Like most on this board I am a believer or indexing stocks. Does indexing bonds really makes sense too, or does relying on bond rating and maturity sufficient?

I am in FBIDX in Fidelity for the fixed income portion of a tax deferred account. Is there any reason for me to stay in this rather than switching to FTBFX?

Seems to have a higher turn over ratio and expenses but results seem better over time so...?


2 Funds Comparison
FBIDX FTBFX
Non-Load Adj. Returns
YTD 3.81 4.34
1 Yr 5.20 5.81
3 Yr 3.96 4.55
Expenses
Expense Ratio 0.32 0.45
Turnover Rate % 42 99
Transaction Fee No No
Volatility Measures
Beta 0.99 0.93
R2 0.99 0.97
Standard Deviation 3.16 3.03

[brewer12345]

It depends on your reasons for maintaining a bond position. I tend to like the indexes because you know exactly what you are getting. There is (virtually) no chance that the manager made a big bet on credit or duration at an inopportune time. If you truly think you have found a superior manager in the bond world that will not do stupid things, then it might be worth departing from the index fund, but I would have a hard time believing that it would be worth bothering with a high grade bond fund.

[ats5g]

perinova,

fyi - FBIDX tracks the LBA index, which includes investment grade bonds, but excludes stuff like HY and EM bonds.

From Fidelity's website on FTBFX:

Quote:

Strategy The fund normally invests at least 80% of its assets in debt securities of all types and repurchase agreements for those securities. The fund uses the Lehman Brothers U.S. Universal Index as a guide in allocating its assets across the investment-grade, high yield, and emerging market asset classes, and in managing the fund's overall interest rate risk. The fund may invest up to 15% of its assets in high yield and emerging market debt securities and may invest in domestic and foreign issuers.

FTBFX Holdings:
Investment Grade Bonds 83.5
High Yield Investments 10.8
Emerging Market Investments 2.9
Cash & Net Other Assets 2.8

If you want pure investment grade bonds, I'd go with FBIDX.

- Alec

[saluki9]

Quote:

Originally Posted by brewer12345 It depends on your reasons for maintaining a bond position. I tend to like the indexes because you know exactly what you are getting.

I don't know about that. Don't tell investors in Vanguard's total bond market index who got clipped 1%+ by the manager's loading up on Worldcom bonds at exactly the wrong time.

The sampling methods used in equity indexing are much different than those used in Fixed Income indexing (Brewer I know you know this already) and a lot more flexibility is left to the portfolio manager, not always with good results.

[brewer12345]

Quote:

Originally Posted by saluki9 I don't know about that. Don't tell investors in Vanguard's total bond market index who got clipped 1%+ by the manager's loading up on Worldcom bonds at exactly the wrong time. The sampling methods used in equity indexing are much different than those used in Fixed Income indexing (Brewer I know you know this already) and a lot more flexibility is left to the portfolio manager, not always with good results.

Yeah, its a problem that has no obvious solution. I suppose that you could always just stick with individual treasury bonds.

[FinanceDude]

Quote:

Originally Posted by saluki9 I don't know about that. Don't tell investors in Vanguard's total bond market index who got clipped 1%+ by the manager's loading up on Worldcom bonds at exactly the wrong time. The sampling methods used in equity indexing are much different than those used in Fixed Income indexing (Brewer I know you know this already) and a lot more flexibility is left to the portfolio manager, not always with good results.

I recently read an article about how to squeeze alpha out of a bond manager............interesting idea, not sure if it has practical applications...........

[brewer12345]

There are plenty of bond managers that deliver alpha, but few of them are working at mutual funds.

[Brat]

Brewer, it looks like your prediction about what upside-down (high-short vs lower-long) portends is true. Sandy Lincoln is blowing current data off, but if the lower middle income household in the mid-west pulls back there is no avoiding the impact.

[brewer12345]

Quote:

Originally Posted by Brat Brewer, it looks like your prediction about what upside-down (high-short vs lower-long) portends is true. Sandy Lincoln is blowing current data off, but if the lower middle income household in the mid-west pulls back there is no avoiding the impact.

Excuse my ignorance, but who the hell is Sandy Lincoln?

[HFWR]

Ol' man Lincoln's daughter son? :P

[Alex]

I like the slice and dice approach to equities and BOND Mutual funds. BUT if I could only choose one BOND fund, I do like the FTBFX Holdings:

Quote:

Investment Grade Bonds 83.5 High Yield Investments 10.8 Emerging Market Investments 2.9 Cash & Net Other Assets 2.8

It gives a nice balance IMHO. Overall, I feel that Fidelity has great Bond funds.

[Brat]

Sandy Lincoln was an 'expert' opining on a financial channel this am. He is a new face to me too.

[brewer12345]

Quote:

Originally Posted by Brat Sandy Lincoln was an 'expert' opining on a financial channel this am. He is a new face to me too.

Aha. I sort of figured as much, but I had never heard of him before.

I think we are headed for not-so-happy times in the next 18 months. Looks an awful lot like a stagflation scenario. Think hard assets, inflation-indexed bonds, short term highgrade bonds, and foreign currency denominated bonds.

[REWahoo]

Quote:

Originally Posted by brewer12345 I think we are headed for not-so-happy times in the next 18 months. Looks an awful lot like a stagflation scenario. Think hard assets, inflation-indexed bonds, short term highgrade bonds, and foreign currency denominated bonds.

Uh oh. Brewer, you aren't wearing one of those shiny silver hats are you?

[unclemick]

Yep - it snowed here the other day - and I'm getting that old deja vue feeling myself.

Great Society and Vietnam - er ah tax cuts and Iraq. my defensive brilliance last time - in hindsight was only so so - Wellesley was good - still have 10% of a non working gold mine, timberland - the foriegn closed end bonds, mining stocks are gone.

This time - balanced index and stay the course.

History doesn't repeat but sometimes it rhymes - ??

heh heh heh heh

[brewer12345]

Quote:

Originally Posted by REWahoo! Uh oh. Brewer, you aren't wearing one of those shiny silver hats are you?

Nah. If I were, you'd hear me talking about "Gold, GOLD, GOLD!!!!!!!!!"

I am just calling it like I see it: inverted yield curve, falling USD, commodity prices rising again, median and lower US consumer flagging, and housing continuing its descent.

But I am a DMT and a retrograde stock and bond picker. If you are an allocator with an appropriately balanced portfolio, feel free to ignore my prognosticating.

[Nords]

Quote:

Originally Posted by REWahoo! Uh oh. Brewer, you aren't wearing one of those shiny silver hats are you?

Hey, a big seasonality runup followed by "sell in May" in the year after an voter-pandering election Congress, before either party is ready to pump up the 2008 election economy.

Or have we all partied hearty enough to forget last May-July yet?

Don't mind me-- I'll be investing overseas.

[perinova]

Thanks all for your inputs!
Conclusion FTBFX is also an index fund but follwing the Universal Lehman Index. Lower grade bonds provide higher volatility and return.
So far I don't have any lower grade fund I am otherwise using VG. Tot. Bond Ix...