jkern
Full time employment: Posting here.
This index fund only has a Morningstar rating of 3 stars. Is this anything to be concerned about or is there a better choice?
This index fund only has a Morningstar rating of 3 stars. Is this anything to be concerned about or is there a better choice?
More recently, in the trailing five years through June 2015, the fund underperformed its category average by an annualized 0.45%--primarily a result of its below-average exposure to credit risk while spreads were tightening. The fund’s standard deviation of returns over the same period (2.9%) matched the category average. However, over the past decade the fund's risk-adjusted performance topped the category average by 0.21% annualized and did so with less volatility (3.36% standard deviation versus 3.92%).
It is a fine choice. Morningstar liked everything about it (stewardship, low costs, etc). The only "ding" was on its performance, and that was more a function of the time period chosen and other factors that just come with the territory of an index fund:
If one was using Fidelity, then one would not use BND nor VBMFX.
Instead, at Fidelity one would use FBIDX, FSITX, or perhaps AGG which all trade without commissions at Fidelity.
Agreed, every brokerage house has their own version of the same thing.
My question would be interest rate risk. Looks like the duration on VBMFX is 5.7 while the yield is about 2.3 - 2.4%. That means that if the Fed follows through with its 1 pp increase next year, it should wipe out the 2.5 years of yield.
I'm currently only holding shorter duration bond funds. YMMV.
Not necessarily. It's unlikely that intermediate rates will go up as much as the Fed funds rate. They might even stay the same or drop. Sometimes the bond market thinks the Fed is too aggressive in tightening, and as a result the yield curve flattens, or even inverts.
Star ratings at Morningstar are not to be used to decide anything with mutual funds....
+1..... If I had a dollar for every time I have heard "when rates are normalized again".........I am so glad I threw in the towel and went long in 2014.
Will be interesting to see what happens. Back in '09/'10 I made some decisions predicated on rates staying low for a long time. I just felt that the Fed was pushing on a rope -- anyone who could get debt didn't want it and anyone who wanted it couldn't get it. So slashing rates wouldn't stimulate borrowing or the economy and therefore rates would stay low for a long time. I'm very glad I took that approach back then.
That said, one of the comments after '08 that really stuck with me was Warren Buffett's comment that "There was a systemic under-pricing of risk. Investors weren't demanding the compensation necessary to justify the risks they were taking."
Very unclear how fast this will unwind (or how the market reacts) but for my money there is a bond bubble right now -- and therefore more underlying risk to principle than usually goes along with bonds. I won't go so far as to avoid the asset class, but I am reining in the durations a bit. I think the great interest rate unwind could cause a lot of damage.
My views are tainted, however, because I have access to investments options through work that serve the function of the longer term/higher rate part of my bond allocation without the rate risk. To a certain extent I've been able to "hide" from this rate environment. (If by some bizarre twist my employer went bankrupt I would be 1000% screwed though...)
I agree. If I'm going to rely on ratings and such, I'll rely on Lipper Leader ratings, and FundMojo ratings.Star ratings at Morningstar are not to be used to decide anything with mutual funds.
If one was using Fidelity, then one would not use BND nor VBMFX.
Instead, at Fidelity one would use FBIDX, FSITX, or perhaps AGG which all trade without commissions at Fidelity.
If one was using Fidelity, then one would not use BND nor VBMFX.
Instead, at Fidelity one would use FBIDX, FSITX, or perhaps AGG which all trade without commissions at Fidelity.
Yeah, PenFed 5 year CD at 3.04. Made a decision a couple of years ago to get out of bonds completely.This index fund only has a Morningstar rating of 3 stars. Is this anything to be concerned about or is there a better choice?
Good points Audrey. I notice that the intermediate bond rates went up well ahead of the actual Fed Funds increase in December. We read that many in the bond market are pricing in maybe 2 quarter point increaes in the Fed rate. But that doesn't necessarily translate up the yield curve.Not necessarily. It's unlikely that intermediate rates will go up as much as the Fed funds rate. They might even stay the same or drop. Sometimes the bond market thinks the Fed is too aggressive in tightening, and as a result the yield curve flattens, or even inverts.
Vanguard Core Bond Fund will offer broad exposure primarily to the U.S. fixed income market, and can serve as a low-cost, core holding for investors who prefer active management. The fund is designed to provide a transparent, risk-controlled option, especially in comparison with many competitor funds. Some bond funds use active investment approaches that may introduce significant exposure to high-yield bonds1, reducing the diversification benefits many investors want. The Vanguard Core Bond Fund limits exposure to these high-yield bonds to 5% of its holdings.
This index fund only has a Morningstar rating of 3 stars. Is this anything to be concerned about or is there a better choice?