Bond fund recommendations

[Sojourner]

My AA is currently 80/20, and I'm looking to start getting it more in line with my goal of 70/30. This is going to require converting everything in my solo 401k to fixed income and also buying more FI in my taxable accounts.

Looking for recommendations for good bond funds or ETFs for both the taxable and retirement accounts. Ideally would like to stick with index funds (or at least ones with low ERs) that are likely to yield more than my Ally online savings account over time.

Based on a few articles I read, I'm considering VFSTX, VFCSX, VGSH, and CSJ. Any thoughts on those particular choices would be appreciated, along with any other or alternative recommendations. Thanks!

 

[pb4uski]

I'm currently parked in VMMXX waiting to see what happens... no interest rate risk, negligible credit risk and currently yielding 2.5%... same yield as many 1-year CDs with total liquidity.

What is VFCSX?

 

[Sojourner]

I'm currently parked in VMMXX waiting to see what happens... no interest rate risk, negligible credit risk and currently yielding 2.5%... same yield as many 1-year CDs with total liquidity.

I also have a small amount of VMMXX in my taxable account. Currently less than 1% of my overall portfolio. What percentage of your overall allocation is in VMMXX?

What is VFCSX?

Ooops, I mean to type VSCSX. Vanguard Short-Term Corporate Bond Index.

 

[pb4uski]

.....What percentage of your overall allocation is in VMMXX? ...

Currently almost all of my domestic fixed income money is in MM funds.... ~13.4% in VMMXX yielding about 2.5% and 8.8% in SPAXX that earns about 2%. The money is parked in MM funds temporarily (I hope) until something attractive in fixed income comes along. I was going to deploy it into CDs but given that CD rates seem stalled I'm in a holding pattern for now.

 

[Dtail]

Currently almost all of my domestic fixed income money is in MM funds.... ~13.4% in VMMXX yielding about 2.5% and 8.8% in SPAXX that earns about 2%. The money is parked in MM funds temporarily (I hope) until something attractive in fixed income comes along. I was going to deploy it into CDs but given that CD rates seem stalled I'm in a holding pattern for now.

FDRXX in Fidelity pays around 5 bps more than SPAXX. FWIW.
If you throw 100k temporarily in FZDXX, then take out X amount, you get ~35 bps over SPAXX.
I am sure you already know, but just saying.

 

[pb4uski]

Yes, I should move some of it to FZDXX until I'm ready...just been lazy.

 

[marinauser]

For a cash and bond allocation, I use about 10% cash, 40% Metropolitan West Total Return, 30% Doubleline Total Return, and about 20% allocated to Loomis Sayles Bond. Loomis gives some international exposure, a different investment philosophy and some non-interest rate diversification. I have access to the cheapest management fee for Met West.

 

[Montecfo]

You mentioned index funds, but for bonds I think you want active management. Indexes are tilted toward large issuers, not the most credit worthy

I like DLNTX Double Line total return, DODIX Dodge & Cox Income. A unique fund is RPHIX, Riverpark ST High Yield which is a short term special situation fund.

As other have said, I have a big allocation to CDs and MM accounts now also, but I think you can add to short to intermediate bond funds here. Do your homework and good luck.

 

[Col. Klink]

Here a bond, there a bond, every type of bond (bond)

There is now a proliferation of bond funds out there. I remember when Vanguard had only U.S. treasury bonds and U.S. corporate bonds funds. Then you simply chose the duration relative to your tolerance for interest rate sensitivity. IMHO, if you simply want additional exposure to bonds across the spectrum, there is still Vanguard total bond market or the etf BND. You really can't go wrong with that. Fido and other fund sponsors have their equivalents.

Vanguard now has international bond funds, emerging market bond funds, mortgage backed securities. Without logging back into Vanguard for an exact number of funds, lets leave it that there are a lot of choices. Perhaps the best advice is to read the prospectus to ensure the goals and strategies of whatever fund are aligned with your needs.

That being said, there are many excellent funds outside of Vanguard. Morningstar profiles many of these such as the Loomis Sayles Bond fund mentioned previously.

 

[24601NoMore]

FI is the one segment where Active Management makes sense (IMHO).

Suggest checking out the PIMCO funds - especially PONAX/PIMIX. Top 15% or better performance in the multi-sector bond category over the past 1, 3, 5 and 10 years. You can buy PIMIX (lower ER) at VG for $25K min vs. the normal $1M elsewhere.

Hard to beat PIMCO when it comes to FI..I invested in several VG bond funds for a while, and they (esp. VBTLX) essentially went nowhere compared to my PIMCO funds..do a performance compare - VBTLX vs. PIMIX on M*. PIMIX absolutely destroys VBTLX in terms of performance for 10+ years..

 

[COcheesehead]

I am a bond ladder guy, so I really don’t do funds, but I have a little in a “go anywhere” multi sector bond fund PTIAX. It yields about 5.6%

 

[mrfeh]

Assuming you want to stick with US total bond funds, I'd choose either VBTLX (Vanguard) or FXNAX (Fidelity).

 

[big-papa]

I have a hierarchy:
Intermediate treasuries: FUAMX (represents about 98% of my total bond holdings)
If an account I have doesn't have intermediate treasuries available such as my HSA, my current 401K or my deferred comp account, then I go to total bond. In those accounts I have: VBTLX, VBMPX, VBTIX

For me, I use nominal intermediate bonds as a low-correlation-to-stock asset. Though sometimes, just for fun, I calculate how many years my nominal bonds might last if I were only withdrawing from them.

 

[pb4uski]

I am a bond ladder guy, so I really don’t do funds, but I have a little in a “go anywhere” multi sector bond fund PTIAX. It yields about 5.6%

I should do something like that.... it is just I still have memory of getting burnt in 2008/2009 when my "core bond fund" manager decided to make a bet on MBS that didn't work out very well at all. I recall that "core bond fund" took a beating while BND and other total bond funds held their ground.

 

[audreyh1]

You mentioned index funds, but for bonds I think you want active management. Indexes are tilted toward large issuers, not the most credit worthy.

Bond index funds typically follow the AGG which has a high credit quality rating compared to the typical core bond fund such as DODIX. In fact many people complain that bond index funds have too much government debt which is sometimes overvalued because of its higher credit quality.

In general, I disagree that you want to seek active management in bond funds. Just look at how AGG has compared historically with core bond funds, particularly during times of financial stress hurting the equity markets. In bond funds I’m looking for a good low-cost diversifier against equity funds, nothing else.

 

[Montecfo]

Bond index funds typically follow the AGG which has a high credit quality rating compared to the typical core bond fund such as DODIX. In fact many people complain that bond index funds have too much government debt which is sometimes overvalued because of its higher credit quality.

As the credit composition of the overall bond market has declined, so has the composition of the AGG. As the overall duration of the bond market has increased, duration of the AGG has also drifted. So if you invest in an index tied to the AGG, that is what you are getting.

Also, to your point, with government bonds taking a higher share of the market, they also comprise a higher share of the AGG. This is by virtue of being an index. I do not want to take a slice of just the "market" for that reason. I would rather have active analysis of issuer credit risk and opportunities. And if i want treasuries, i will buy them.

In general, I disagree that you want to seek active management in bond funds. Just look at how AGG has compared historically with core bond funds, particularly during times of financial stress hurting the equity markets. In bond funds I’m looking for a good low-cost diversifier against equity funds, nothing else.

I see the point you are making. Dodge and Cox income has outperformed the AGG over virtually all time periods. Most any active bond fund will underperform the AGG somewhat in times of severe market stress, unless it has a HIGHER allocation to government securities. DODIX did slightly underperform the AGG for a few months in 2008. DLNTX has not been quite as good but has also outperformed the AGG over virtually all time periods.

But a treasury index will beat the AGG in times of great market stress.

 

[Sojourner]

Thanks to all for the good suggestions and thoughts so far.

While I originally said I wanted to focus on index funds, I'm coming around to the idea that managed bond funds could (or should?) be a part of my FI allocation, as well. Wellesley, after all, is approximately 65% FI and is actively managed and almost universally loved.

PIMIX was mentioned—here and on Bogleheads—as a first rate fund that has outperformed for many years. With a 0.74% ER, it's much more expensive than I'd like, and I would usually disqualify a fund with an ER that high. In this case, though, I think it might be worth serious consideration.

Other than its fairly high ER, I'd be interested to learn why PIMIX would not be a suitable choice for, say, 10-20% (or more) of someone's FI allocation.