Question about Bond Funds

[FiveDriver]

I'm looking for clarification of Fidelity's Bond Fund nomenclature, and the general types of Bond Funds.

They have FSITX, a Total US Bond Index Fund Premium Class.
There was also some talk about a Total US Bond Fund (not Index).

Does anybody have any experience with these Funds ?? What exactly is the difference ?? Is a Bond Index better that a straight Bond Fund ??

I'm thinking about increasing my Bond Allocation within my IRA.

 

[DrRoy]

If you go to the Fidelity website, you can look up each fund and read the details about how the fund operates and how the bond portfolio is managed.

 

[FiveDriver]

At the higher level, here on a Sunday afternoon, I was just looking for a discussion about the difference between Bond Index and Straight Bonds ??

Are there Tax Implications ?? Shouldn't matter within an IRA.

 

[MRG]

My Fidelity guy just suggested the index vs. Total Bond fund.

Reason the index is ~.40 less ER. YMMV

 

[Marc]

I'm looking for clarification of Fidelity's Bond Fund nomenclature, and the general types of Bond Funds.

They have FSITX, a Total US Bond Index Fund Premium Class.
There was also some talk about a Total US Bond Fund (not Index).

Does anybody have any experience with these Funds ?? What exactly is the difference ?? Is a Bond Index better that a straight Bond Fund ??

I'm thinking about increasing my Bond Allocation within my IRA.

I used to be in both; but I switched solely to FTBFX a couple of years ago after researching performance over a number of years. For a while i supplemented FTBFX with FAGIX and FFRHX but I closed those positions last year (in retrospect a bad move). I have about 1.2M in FTBFX and am still very pleased with the fund.

Marc

 

[FiveDriver]

Good Input.....I'm going to compare FTBFX Total Bond Fund to the FSITX Total Bond Index Fund just for jollies. I've been watching FSITX closely since last September, and it has not been a pretty picture.

Is Fido calling their Low Expense Ratio/ High Min Purchase Funds Premium Class now ?? No more Spartan ?

That 0.4% may be a difference maker at these lower levels of return. If the overall performance is there....you don't mind paying it.

 

[target2019]

One Boglehead said it is managed fund vs. index fund. There is probably more to the analysis of these two funds.

https://www.bogleheads.org/forum/viewtopic.php?t=147623

 

[MRG]

Good Input.....I'm going to compare FTBFX Total Bond Fund to the FSITX Total Bond Index Fund just for jollies. I've been watching FSITX closely since last September, and it's not a pretty picture.

Is Fido calling their Low Expense Ratio/ High Min Purchase Funds Premium Class now ?? No more Spartan ?

That 0.4% may be a difference maker at these lower levels of return. If the overall performance is there....you don't mind paying it.

Spartan name was dropped. I have not compared the two bond funds either. I recall reading the index recently changed some of their practices. Consider that when you go back in time. I'd be curious of your thoughts.

 

[FiveDriver]

The boglehead link produced this, tidily sums it up.....

"I know Fidelity Total Bond Fund (FTBFX) well and have owned for many years. It contains High Yield Bonds, Emerging Market Bonds, and more corporate bonds than the index - so yes it is more risky. I am willingly and knowingly taking the extra risk. The manager does not take huge risks and interest rate bets. The fund stays pretty close to the index, but tweaks the index with the High Yield Bonds, EM Bonds, and a bit more corporates. In 2009 it took a much bigger hit than the true bond index fund, but it bounced back. I like this fund because I think the bond index funds (FSITX and VBMFX) have too much government/treasury bonds and I am looking for a little bit of extra diversification."

Expense Ratios --
FTBFX -- 0.45%
FSITX -- 0.07%

Now there remains a question of performance that needs further study. I'm not sure I want to buy into a lot of "high-yield" or Emerging Market bonds for an extra point (half of which is consumed by ER). But this answers a lot of my questions.

 

[hesperus]

We have about 1.6M in a bond ladder (mostly corporate) split between IRA and taxable accounts, with an additional 10% of that value in FSITX & FLTMX funds. Opted to go with a ladder this time, and avoid the potential for fund losses.

 

[pb4uski]

If you look at th growth of $10,000 for 1, 3, 5 and 10 year periods, the managed fund has outperformed the index fund in each period.

 

[FiveDriver]

The Money / USNews website has a good comparison graph feature. When I overlay the two funds, it's clear that the FSITX Index Bond Fund is more stable, and may in fact out perform the managed fund in volatile times --

Fidelity® US Bond Index Fund (FSITX) Interactive Chart | US News Best Mutual Funds

While the Y axis is exaggerated in that graph, I think the Index Fund would better withstand a shock.....which is just what you want your Bond Allocation to do.

 

[Montecfo]

If you look at th growth of $10,000 for 1, 3, 5 and 10 year periods, the managed fund has outperformed the index fund in each period.

To me indexes make the most sense for large liquid markets such as blue chip equities. For Bonds, particularly in a rising rate environment I believe active management makes more sense.

 

[COcheesehead]

If you look at th growth of $10,000 for 1, 3, 5 and 10 year periods, the managed fund has outperformed the index fund in each period.

Yep in this case paying the higher fee gives you more.

 

[COcheesehead]

Another FIDO fund to consider is FSICX, Fidelity Strategic Income. It soundly outperforms both of the previously mentioned funds, both short and long term.

 

[FreeBear]

Is Fido calling their Low Expense Ratio/ High Min Purchase Funds Premium Class now ?? No more Spartan ?

The Spartan name on the Fido index funds was dropped last year per their website:

https://www.fidelity.com/mutual-funds/fidelity-funds/why-index-funds

There are 2 classes of each of these index funds: Investor and Premium (formerly called Advantage). Similar to Vanguard's Investor and Admiral classes, the Premium has a higher min. initial investment and min. balance and lower expense ratios. Glad VG's low fees seem to encourage the same in Fido.

I didn't realize Fido had a lower ER Premium class, and these seem to be available from others discount brokers, not just direct from Fido. Live and learn...

 

[haha]

The boglehead link produced this, tidily sums it up.....

"I know Fidelity Total Bond Fund (FTBFX) well and have owned for many years. It contains High Yield Bonds, Emerging Market Bonds, and more corporate bonds than the index - so yes it is more risky. I am willingly and knowingly taking the extra risk. The manager does not take huge risks and interest rate bets. The fund stays pretty close to the index, but tweaks the index with the High Yield Bonds, EM Bonds, and a bit more corporates. In 2009 it took a much bigger hit than the true bond index fund, but it bounced back. I like this fund because I think the bond index funds (FSITX and VBMFX) have too much government/treasury bonds and I am looking for a little bit of extra diversification."

One doesn't need diversification with treasuries. Buy them when there is no large yield improvement from going with issues with credit risk at a given duration. Also, at times TIPS are a good buy. If treasuries area good buy no need to buy anything else.

Ha

 

[audreyh1]

I prefer high quality in my bond funds, so I go with FSITX.

I already have a large position in DODIX which is increasingly more corporate bond oriented, so I wanted something with higher credit quality to help balance it out.

 

[audreyh1]

Another FIDO fund to consider is FSICX, Fidelity Strategic Income. It soundly outperforms both of the previously mentioned funds, both short and long term.

It is also far more volatile and holds more lower quality bonds. It also holds international bonds. Some folks may not care to hold the more volatile international bonds as part of their core bond holding.

 

[bw5972]

I'm looking for clarification of Fidelity's Bond Fund nomenclature, and the general types of Bond Funds.

They have FSITX, a Total US Bond Index Fund Premium Class.
There was also some talk about a Total US Bond Fund (not Index).

Does anybody have any experience with these Funds ?? What exactly is the difference ?? Is a Bond Index better that a straight Bond Fund ??

I'm thinking about increasing my Bond Allocation within my IRA.

In a rising rate environment, a fund like FSITX with its 5.83 Years duration, could see its NAV drop in the coming year. If chair Janet and the Fed boys move up half a pct 3 times, your net return (interest - loss of NAV) will be in the red.

 

[audreyh1]

O.5% interest rates by the Fed are quite unusual. And the Fed funds rate moves do not directly control the rates for intermediate bonds. No one knows exactly what is going to happen to interest rates this year let alone how the yield curve and spreads across various types of bonds are going to be affected

 

[bw5972]

Bond fund duration and interest rate risk

O.5% interest rates by the Fed are quite unusual. And the Fed funds rate moves do not directly control the rates for intermediate bonds. No one knows exactly what is going to happen to interest rates this year let alone how the yield curve and spreads across various types of bonds are going to be affected

Fed rate moves don't directly control ANYTHING except overnight lending to FED member banks, but does IMPACT a lot of things.

https://investor.vanguard.com/insights/bond-fund-basics-duration

For bond funds, the impact "rule of thumb" is duration x rate increase = decline in fund value. I would not want to take much of this "interest rate" risk (duration = 5 for the fund in question given:

"Yellen has tentatively sketched out a path of three rate hikes per year until the Fed get interest rates to 3% in 2019." - MarketWatch

 

[COcheesehead]

It is also far more volatile and holds more lower quality bonds. It also holds international bonds. Some folks may not care to hold the more volatile international bonds as part of their core bond holding.

It has more risk, but more return as well. I get it, but I have some as part of my bond allocation. Cash flow is king.

 

[audreyh1]

It has more risk, but more return as well. I get it, but I have some as part of my bond allocation. Cash flow is king.

I also have a small position - but as a bond diversifier (for some international, emerging market, high yield and TIPs exposure) against my "core" bond position which does not include any of those categories.

In general, I prefer to rely on a healthy equity allocation to take more return for risk exposure, and not take much risk in bonds.

 

[COcheesehead]

I also have a small position - but as a bond diversifier (for some international, emerging market, high yield and TIPs exposure) against my "core" bond position which does not include any of those categories.

In general, I prefer to rely on a healthy equity allocation to take more return for risk exposure, and not take much risk in bonds.