Anyone bailing out of bond funds?

enjoyinglife102 said:
I often wonder how the financial services industry rakes in billions when the overwhelming evidence is that one's greatest chance for success is to buy and hold index funds periodically rebalancing to take advantage of say bond funds dropping in price or stock funds tanking. Not much money in that for the middleman but this thread is just one more example of how those billions are made. Bill Gross projects the 10 year to be 2.2 soon? Bill Gross dumped treasuries a while back missing out of an enormous rally and his fund badly underperformed. The "king of bonds" with all his trading and expertise versus Vanguard Intermediate Index Admiral:
Harbor Bond:
5yr: 6.97 10yr: 6.16

Vanguard
5yr: 7.20 10yr: 6.18

And you think your trading can outperform this because?
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If you look at PTTRX which is easily available through Vanguard, you will see a different picture of the relative returns versus Vanguard Intermediate Bond Adm VBILX. I don't know why PTTRX has done better then HABDX but it could be that the ER history has something to do with it. The M* numbers are:

PTRRX:
5yr: 7.3 10yr: 6.0%

VBILX:
5yr: 6.8 10yr: 5.3%

Also for completeness, Harbor Bond HABDX:
5yr: 6.6 10yr: 5.6%

Personally these returns are OK either way. Neither put you in the poor house.
 
I had a look at Hartford, New York life, and a couple more. Please have a look at the "interesting comments on annuities" thread. The top 3 providers are broadly similar.

smjsl said:
obgyn65, do you mind sharing what deferred annuities you are buying. I've been staying away due to general perception of too-high-fees, but taxes hurt a lot :-(

Sorry if this was discussed in another thread.
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I'm not bailing out of bond funds, but I don't have a whole lot in them anyway. My entire 401k is made up of Vanguard's Total Bond Market Index. That's about 14.01% of my overall investments. In my taxable account I have cash (10.83%) and stocks (53.92%). My Roth IRA is made up of US and foreign REITs split fifty/fifty (21.24%).

I don't have any specific asset allocation percentages that I shoot for. I put what I can into the 401k and Roth IRA, and whatever is left over goes into my taxable account. My cash is my emergency money (minimum of one year of living expenses), which is higher than usual because I have set money aside for a new car and a large tax bill coming next year. Everything else goes into stocks in my taxable account.
 
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Hanging in there with a 45/35/20 equity/bond /cash. Like many I have plowed all new contributions into a SV fund which has driven up my cash portion from 15 to 20%. However I can't help but wonder if all this cash on the sidelines won't help suppress rates even longer. Meanwhile I'm giving up about 1 % of interest income waiting for the rates to rise.
 
roger r said:
I am actually a little over-weight in Wellington
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This is the way I'm hiding my head in the sand: I'm slowly moving my bond holdings out of bond funds and into funds like Wellesley and Wellington where I can deceive myself into thinking someone smarter than me is managing my cash vs. bond exposure more intelligently than I can.
 
bUU said:
This is the way I'm hiding my head in the sand: I'm slowly moving my bond holdings out of bond funds and into funds like Wellesley and Wellington where I can deceive myself into thinking someone smarter than me is managing my cash vs. bond exposure more intelligently than I can.
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That is what I did with my mom's bond funds. I don't see any reasonable alternative other than the stock market. Perhaps the W&W fund managers have bugs in the Federal Reserve and Treasury Dept office. Which would account for their stellar performance over the decades. A bit of insider trading maybe the only way out of this mess :D
 
bUU said:
This is the way I'm hiding my head in the sand: I'm slowly moving my bond holdings out of bond funds and into funds like Wellesley and Wellington where I can deceive myself into thinking someone smarter than me is managing my cash vs. bond exposure more intelligently than I can.
Click to expand...

clifp said:
That is what I did with my mom's bond funds. I don't see any reasonable alternative other than the stock market. Perhaps the W&W fund managers have bugs in the Federal Reserve and Treasury Dept office. Which would account for their stellar performance over the decades. A bit of insider trading maybe the only way out of this mess :D
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And here I was thinking I was the only one who had this all figured out...:)
 
roger r said:
I am pretty much a buy and hold guy and haven't made any major adjustments to my portfolio other than some informal balancing for a few years. I noticed my Fidelity intermediate bond fund's asset value YTD has already declined more than any hopes of interest income for the year and am think on bailing out of anything longer than short term. I am looking for opinions?

I am aware of the two basic arguments for buying and holding bond funds. First, that if you hold long enough the increasing returns will eventually outweigh losses in NAV. And that it is futile to try to predict interest rates and time the market. Well...on another day I would tend to agree. But with interest rates at rock bottom and nowhere to go but up, and with what appears to be a boom in housing sales, improved consumer confidence, and a general economic recovery, is not the interest rate writing on the wall? Even the talking heads are warning about the risks of getting into bond funds right now. Why stand idly by?

Then I guess the question then becomes where to go? I was thinking just shifting into short term funds, but there is always CDs or money markets, where returns are dismal but the principal is protected.
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Yes. My primary bond component was sold early May when I rolled my 401k.
Where to go? Slowly into high quality, global equities.
 
Something I just put together on my spreadsheet for tracking the portfolio is:

2ijix5t.jpg


Might help me save my sanity and remain calm in a bond market day like today with my intermediate bond fund currently down -1.2% for the day as I write this.
 
Right now we're seeing what passes for panic selling in the bond market. Short term funds with durations less than the start of any proposed 'tapering' have sold off considerably.

So, no, I'm not selling. I know how this tends to play out over several years, and it's not the Doomsday Scenario the financial punditocracy would like you to believe. Sure does generate the clicks and pageviews, though...
 
REWahoo said:
Someone always comes along to spoil a good story by wanting facts...
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Speaking of facts, the common wisdom seems to be that interest rates are at rock bottom and have no where to go but up.

However...yesterday's 10-year treasury yield was 2.73%. As recently as May 2, the rate was 1.66%. That's a 64% increase in just two months. How can a value that's 64% higher than it was just a few weeks ago be considered rock bottom?
 
According to ICI data there was 60 billion going out of bond funds in June. But since 2007 there was 1.275 trillion of net inflows into bond funds. Not sure what to read into that... I'm sure the Portfolio Managers at PIMCO were happy.
 
Gatordoc50 said:
U.S. public pension funds - Asset allocations: past, present and future - Pensions & Investments


Here is a link to an article that shows the general trend in the past year or so of public pensions reducing their bond allocation. I have also been studying individual states AA and have noticed a remarkable reduction in bonds in many of them.
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Looks to me like they are reducing equities and increasing alternatives in recent years. I find the 8% reduction in equities more relevant than the 2% reduction in bonds. However, the alternatives are quite equity-like so for the most part it seems to be simply a tradeoff of equity for private equity (which is probably what a lot of the "alternatives" are). I don't know if I would read a lot into the 2% reduction in bonds and to characterize it as "bailing" seems like sensationalism.
 
pb4uski said:
Looks to me like they are reducing equities and increasing alternatives in recent years. I find the 8% reduction in equities more relevant than the 2% reduction in bonds. However, the alternatives are quite equity-like so for the most part it seems to be simply a tradeoff of equity for private equity (which is probably what a lot of the "alternatives" are). I don't know if I would read a lot into the 2% reduction in bonds and to characterize it as "bailing" seems like sensationalism.
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This chart was last year. If you go to specific States and check their AA as of now, you will find fixed income in the 8 to 10% range. Many are dumping fixed income.
 
Which Roger said:
Speaking of facts, the common wisdom seems to be that interest rates are at rock bottom and have no where to go but up.

However...yesterday's 10-year treasury yield was 2.73%. As recently as May 2, the rate was 1.66%. That's a 64% increase in just two months. How can a value that's 64% higher than it was just a few weeks ago be considered rock bottom?
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I'm looking forward to the higher interest rates that my bond funds will earn in the future. IMHO people put too much emphasis on NAV when it comes to bonds.
 
nun said:
I'm looking forward to the higher interest rates that my bond funds will earn in the future. IMHO people put too much emphasis on NAV when it comes to bonds.
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+1. I am bond funds for the income, not the price changes. Bond fund monthly dividends per share have been dropping over the years so it would be nice to see them rise again.
 
I'm not planning for the current situation to get worse or better in bonds, just sitting tight. But the nice thing is that it now pays to go further out on the yield curve. So that is a plus for intermediate term bonds and comforting to me.

Here is a historical perspective (right scale is the spread %, and left scale is the 5yr Treasury yield):


2nlv6kk.jpg
 
nun said:
I'm looking forward to the higher interest rates that my bond funds will earn in the future. IMHO people put too much emphasis on NAV when it comes to bonds.
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Are you kidding? Yields will go up BECAUSE the NAV goes down. It does not necessarily mean that your income will go up.

You want higher standard of living? Invest for total return and spend part of your principal.
 
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