Active vs. passive for REITs and BONDs

[hotwired]

Thank you - I thik this is where my "pain" came from mostly...thinking my allocation was 35% stock when really it was more like 80% !! I do love CEFs that trade at a discount and often wonder why someone who didn't need any of the money right away wouldn't do NOTHING but invest in sound CEFs that traded at a discount. There's every type of investment vehicle via these things...I've got a few now. ALL trade near 52wk discounts except my two PIMCOs which trade are premium but only 3-4% which is also a 52 week low disc/nav.

Thanks again. So many people on this forum that know so MUCH more than I, it's humbling.

 

[audreyh1]

Audreyh, thanks for pointing that out. Here is a revision.

The figures in my original post were all produced from the same Morningstar total return graph. But there is a difference from the total returns stated on each individual Morningstar page mainly affecting the ETF. Capturing those figures instead reveals the following (and adding FXNAX):

1Month
DODIX: -2.24%
DLTNX: +.61%
AGG:. -1.82%
FXNAX: +.20%

YTD:
DODIX:. -.64%
DLTNX: +2.10%
AGG:. -.04%
FXNAX: +2.11%

12 Mo:
DODIX: 6.3%
DLTNX: 6.64%
AGG:. 6.77%
FXNAX: 8.99%

AGG=Barclays iShare Aggregate ETF
DODIX= Dodge & Cox income
DLTNX=Double Line TR bond
FXNAX = Fidelity US bond fund

All results per Morningstar.

It mattered a lot how you "index". Bond ETFs that I have looked at moved to discounts to NAV, which lowered returns. Mutual funds did not have this issue, by definition.

Other observations welcome.

According to the iShares site, YTD total return for AGG including yesterday is +2.33%.

But is also shows a chart of the premium and discount to NAV which which started dropping last week, and got hit pretty hard week of March 9. https://ycharts.com/companies/AGG/discount_or_premium_to_nav

Hmmm - I'm glad I have a bond index fund and not a bond index ETF.

But seriously, I don't think you demonstrated that a bond index mutual fund which tracks the Bloomberg Barclays US Aggregate Bond Index is going to behave worse than more aggressive actively managed funds such as DODIX when credit markets are under stress. Your example showed the opposite.

 

[Montecfo]

According to the iShares site, YTD total return for AGG including yesterday is +2.33%.

That is the total return measuring from the NAV, which is also quoted on Morningstar. But you could not have sold and gotten the NAV price.

Hmmm - I'm glad I have a bond index fund and not a bond index ETF.

But seriously, I don't think your argument that a bond index mutual fund which tracks the Bloomberg Barclays US Aggregate Bond Index is going to behave worse than more aggressive actively managed funds such as DODIX when credit markets are under stress is valid.

Well, I did not make that argument in fact. In fact i would make a different argument: the AGG SHOULD outperform in times of stress due to its higher allocation to treasuries. And that appears to be borne out, except perhaps of ETF's.

I do make the point that over a long period of time, DODIX has outperformed the AGG. Accordingly, you will have more money investing in DODIX than you would the AGG.

It will be interesting to see how FXNAX fares. it is still relatively new but it certainly has performed well since inception. But i would not expect it to perform much differently than its index (at least not the the upside).

DLTNX has outperformed the AGG markedly since its inception and indeed over the near term, but it is also relatively new (2010).

 

[audreyh1]

That is the total return measuring from the NAV, which is also quoted on Morningstar. But you could not have sold and gotten the NAV price.



Well, I did not make that argument in fact. In fact i would make a different argument: the AGG SHOULD outperform in times of stress due to its higher allocation to treasuries. And that appears to be borne out, except perhaps of ETF's.

I do make the point that over a long period of time, DODIX has outperformed the AGG. Accordingly, you will have more money investing in DODIX than you would the AGG.

It will be interesting to see how FXNAX fares. it is still relatively new but it certainly has performed well since inception. But i would not expect it to perform much differently than its index (at least not the the upside).

DLTNX has outperformed the AGG markedly since its inception and indeed over the near term, but it is also relatively new (2010).

Yes, I agree that funds like DODIX will outperform over long time periods as they take more risk. But I am rebalancing/diversifying against equities, and I’m interested in bond funds that hold up better during periods of market and economic stress.

P.S. AGG is the ETF, and Agg is one of the shorthands for the index it tracks. It can get confusing what exactly one is talking about.

 

[Montecfo]

Yes, I agree that funds like DODIX will outperform over long time periods as they take more risk. But I am rebalancing/diversifying against equities, and I’m interested in bond funds that hold up better during periods of market and economic stress.

P.S. AGG is the ETF, and Agg is one of the shorthands for the index it tracks. It can get confusing what exactly one is talking about.

These discussions are always interesting and I learn a lot.

I used AGG (the ETF) as shorthand for the Index, since you can't invest directly in the Index. It under-runs the Index very slightly, which is what you would expect. Morningstar of course compares to the Index. But it helps to point that out.

I think we have very mildly different risk profiles. These bond funds are the most aggressive portion of what I consider as my bond portfolio. I am usually rebalancing out of MM fund or ultrashort funds. Having said that, I would not hesitate to rebalance out of them on a heavy enough selloff, as they do hold up well.

Thanks for the comments, Audreyh1!

 

[pb4uski]

Do you compare your returns to the stock index, bond index, or something entirely different. How do you determine if there isn't a better risk adjusted
return for your money? Just curious as you usually have a good handle on returns in comparison to an index.

VW

I plan to pretty much buy and hold these for income so my focus is more on yield rather than total return.... not that I don't look at total return, it is just more than my focus is on yield. I view it as a just above invstment grade fixed income portfolio.

Weighted average yield is 5.73% so its 2.4% better than my CDs but also much higher risk too.

 

[audreyh1]

These discussions are always interesting and I learn a lot.

I used AGG (the ETF) as shorthand for the Index, since you can't invest directly in the Index. It under-runs the Index very slightly, which is what you would expect. Morningstar of course compares to the Index. But it helps to point that out.

I think we have very mildly different risk profiles. These bond funds are the most aggressive portion of what I consider as my bond portfolio. I am usually rebalancing out of MM fund or ultrashort funds. Having said that, I would not hesitate to rebalance out of them on a heavy enough selloff, as they do hold up well.

Thanks for the comments, Audreyh1!

Thanks for yours!

 

[BeachOrCity]

I plan to pretty much buy and hold these for income so my focus is more on yield rather than total return.... not that I don't look at total return, it is just more than my focus is on yield. I view it as a just above invstment grade fixed income portfolio.

Weighted average yield is 5.73% so its 2.4% better than my CDs but also much higher risk too.

I assume you meant just BELOW investment grade?

And you know more about preferreds in your pinky than I do in my head but given where they are in the capital stack aren’t they by definition more equities with a fixed return than bonds? (Because EVERY bonds gets paid before preferred).

 

[pb4uski]

I assume you meant just BELOW investment grade?

And you know more about preferreds in your pinky than I do in my head but given where they are in the capital stack aren’t they by definition more equities with a fixed return than bonds? (Because EVERY bonds gets paid before preferred).

No, I meant just above investment grade... most of the preferreds that I invest in are investment grade.... S&P investment grade is BBB- and up. Though I do have some tickers that are just below investment grade.

BBB+	4.8%
BBB	26.7%
BBB-	54.2%
Inv GR	85.73%
BB+	4.5%
BB	9.8%
Total	100.00%

But you are right that debt is ranked ahead of preferred in the event of liquidation... usually senior debt is rated two notches higher than preferred... so if a company's preferred is BBB- then it senior debt generally would be BBB+

The major difference vs bonds is that the Board can decide not to pay the preferred dividend and preferred holders can't do anything but wait... whereas bondholders who don't get paid interest can sue.