Fidelity Core Bond Strategy

[pb4uski]

The one issue that I had with the structure is that in the final year yields lag because the bonds mature throughout the year and are invested short term until the terminal distribution in December... so the return in that final year was not very good. My solution was to just sell it in January of the final year rather than wait until December to avoid that lag.

 

[COcheesehead]

The one issue that I had with the structure is that in the final year yields lag because the bonds mature throughout the year and are invested short term until the terminal distribution in December... so the return in that final year was not very good. My solution was to just sell it in January of the final year rather than wait until December to avoid that lag.

I get that. It makes sense, there is dead money for a bit.
These could make sense for someone who does not want to build a ladder, but still wants the precision and safety of a par value. Interesting product.

 

[pb4uski]

I used the product for a while as a bond/CD substitute.

For example, the 2025 Corporate Bond product has a portfolio yield to maturity of 1.21%... less 0.10% managment fee nets 1.11% vs 0.45-0.50% for 5-year brokered CDs at Vanguard or Fidelity or 1.20% for a 5-year CD at Navy Federal.

Definitely more credit risk, but another option. I will admit that I am more into CDs these days because I prefer to avoid corporate credit risk at this juncture.

https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=BSCP

 

[COcheesehead]

I used the product for a while as a bond/CD substitute.

For example, the 2025 Corporate Bond product has a portfolio yield to maturity of 1.21%... less 0.10% managment fee nets 1.11% vs 0.45-0.50% for 5-year brokered CDs at Vanguard or Fidelity or 1.20% for a 5-year CD at Navy Federal.

Definitely more credit risk, but another option. I will admit that I am more into CDs these days because I prefer to avoid corporate credit risk at this juncture.

https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=BSCP

I am living off a muni ladder I built a few years back so the yield is still nice. It will carry me to 2027, plus a bit more into the 2030’s.
I was lucky to buy a lot at higher interest rates.

 

[RunningBum]

If you don’t know why par is important, then invest in a bond fund. If rates rise, your value will decrease. Not so with a par bond which returns to its original value at maturity. There is no maturity to a fund.

Bonds are still a mystery to so many.

Questions are good, but when you challenge without having a clear understanding of what you are challenging...it comes across differently.

Since I was admonished for asking questions about this, I did some investigation on these mysteries. Turns out I'm not so uninformed after all.

From a Vanguard paper on Bonds vs. Bond Funds https://personal.vanguard.com/pdf/ICRIBI.pdf

The ‘principal at maturity’ myth

Holding an individual bond to maturity primarily confers
an emotional, rather than economic, benefit and tends
to be most practical for funding of near-term liabilities
with highly predictable values.
...
This price adjustment punctures the common myth
that holding an individual bond to maturity will provide
an economic benefit to the investor. Absent transaction
costs, when interest rates are rising, the total return and
present value of the cash flows will be equal from that
point forward, regardless of whether the bond is held
to maturity or sold at a loss prior to maturity with the
proceeds reinvested in a bond with a comparable maturity
date, but a higher coupon. Therefore, the fact that an
investor is able to get principal back at a specific maturity
date adds no economic value compared with a mutual
fund that does not have a specific maturity date.

My summary is that while it's true you get your full investment back even when interest rates rise, you pay the price in that environment of getting sub-market interest payments. In other words, look at total return. Absent fees, your return is the same whether you hold the bond to maturity or sell it, and that's true whether the bonds are held individually, or in a fund.

I'll refrain from any snide remarks, but I've got one more thing to say: I'm not going to be bullied into staying quiet. I'll ask questions whenever I damn well want to.

 

[pb4uski]

I agree.

If you had a bond fund without fees that had money invested equally in bonds that matured in 1-10 years and a 10 year bond ladder of the same bonds... ignoring fees, the returns should be the same.

 

[COcheesehead]

Should be the same and are the same is the crux of the matter.
I like prefunding spending. I have a ladder funding 100% of my budget until 2027 and then some. I know exactly what I am getting. I like the precision and virtual guarantee of individual bonds.
If I have a fund and start pulling money from it each year, the NAV in a rising rate environment drops, so I am taking a hit on each withdrawal. With an individual bond the mark to market price price may fall as rates rise, but the bond eventually returns to par. I like that.

 

[COcheesehead]

Since I was admonished for asking questions about this, I did some investigation on these mysteries. Turns out I'm not so uninformed after all.

From a Vanguard paper on Bonds vs. Bond Funds https://personal.vanguard.com/pdf/ICRIBI.pdf
My summary is that while it's true you get your full investment back even when interest rates rise, you pay the price in that environment of getting sub-market interest payments. In other words, look at total return. Absent fees, your return is the same whether you hold the bond to maturity or sell it, and that's true whether the bonds are held individually, or in a fund.

I'll refrain from any snide remarks, but I've got one more thing to say: I'm not going to be bullied into staying quiet. I'll ask questions whenever I damn well want to.

Who is bulling? I simply brought up you challenged me on something you didn’t understand. I am glad you finally took the time to understand it better. Have a good weekend.

 

[RunningBum]

Who is bulling? I simply brought up you challenged me on something you didn’t understand. I am glad you finally took the time to understand it better. Have a good weekend.

It sure felt like bullying to me. It's unfortunate you don't see it, because that means it'll probably continue. Nobody should be discouraged from asking questions.

I understood it just fine before. All I did was find a solid source that said it in a better way.

My issue stems back to this half-truth in post #33, warning bond fund holders about rising interest rates while implying that individual bond holders area unaffected. That statement should have an appropriate warning for bonds.

Anyone buying a bond fund right now needs to understand the dynamics of interest rates. You will see erosion in the value of your investment if rates rise. Interest payments may remain equal or increase, but your initial investment will likely decrease, at least in the near term.
If you buy a bond, you will see that same erosion of value if you decide to sell the bond before maturity. If you hold to maturity, you will get your principal back, but at the cost of a sub-market interest rate.
Both bond and bond fold holders are negatively impacted by rising interest rates, which have the ultimate effect of reducing your buying power.

There's probably a better way to word it, but the point is that all are negatively impacted by the same amount in the end.

If you like the fixed, non-COLA interest rate and return of capital with individual bonds, stay with it. But it's in no way more superior or safer than bond funds.

 

[COcheesehead]

It sure felt like bullying to me. It's unfortunate you don't see it, because that means it'll probably continue. Nobody should be discouraged from asking questions.

I understood it just fine before. All I did was find a solid source that said it in a better way.

My issue stems back to this half-truth in post #33, warning bond fund holders about rising interest rates while implying that individual bond holders area unaffected. That statement should have an appropriate warning for bonds.


There's probably a better way to word it, but the point is that all are negatively impacted by the same amount in the end.

If you like the fixed, non-COLA interest rate and return of capital with individual bonds, stay with it. But it's in no way more superior or safer than bond funds.

You missed the point I have been trying to make. My response above to PB #57 maybe says it clearer. I’ll leave there.

 

[GravitySucks]

Actually while they are fairly rare, there are target maturity bond ETFs available, which are in between individual bonds and bond funds/ETFs.

IBDM, IBDN, IBDO, etc are the main holdings of my bond ladder. Been happy with them for near 5 years now. When they mature I'll be extending the ladder with treasuries or FUAMX treasury fund.

 

[GravitySucks]

The minimum has dropped to $350,000.
Back to the OP - Has anyone on here invested in this?

The .40 fee is lower than most managed bond funds and get the advantages of owning bonds instead of mutual funds.

$350k brings it into a more comfortable arena for me.

 

[capjak]

I invested 350,000 in June 2020, to the core bond fund managed by Fidelity. As of today I have 351,034 after fees invested in 39 different bonds. So +0.29%. You can use the analysis tool to see distrubution of corporate vs government and rating and cash flow etc...

At the sametime I invested in BND it is up +1.4% in same timeframe.


Added: One thing is if you decide to stop the managed bond fund, you own the bonds that are in the your account and than you have to sell and/or manage yourself, so a bit more of a hassle than just BND.

 

[GravitySucks]

I invested 350,000 in June 2020, to the core bond fund managed by Fidelity. As of today I have 351,034 after fees invested in 39 different bonds. So +0.29%. You can use the analysis tool to see distrubution of corporate vs government and rating and cash flow etc...

At the sametime I invested in BND it is up +1.4% in same timeframe.


Added: One thing is if you decide to stop the managed bond fund, you own the bonds that are in the your account and than you have to sell and/or manage yourself, so a bit more of a hassle than just BND.

Thank you

 

[pn3069]

I invested 350,000 in June 2020, to the core bond fund managed by Fidelity. As of today I have 351,034 after fees invested in 39 different bonds. So +0.29%. You can use the analysis tool to see distrubution of corporate vs government and rating and cash flow etc...

At the sametime I invested in BND it is up +1.4% in same timeframe.


Added: One thing is if you decide to stop the managed bond fund, you own the bonds that are in the your account and than you have to sell and/or manage yourself, so a bit more of a hassle than just BND.

Do you get to see the list of corporate bonds the program invests in? What is a small, sample list with maturity date and coupon rate?

 

[Golden sunsets]

It sure felt like bullying to me. It's unfortunate you don't see it, because that means it'll probably continue. Nobody should be discouraged from asking questions.

I understood it just fine before. All I did was find a solid source that said it in a better way.

My issue stems back to this half-truth in post #33, warning bond fund holders about rising interest rates while implying that individual bond holders area unaffected. That statement should have an appropriate warning for bonds.


There's probably a better way to word it, but the point is that all are negatively impacted by the same amount in the end.

If you like the fixed, non-COLA interest rate and return of capital with individual bonds, stay with it. But it's in no way more superior or safer than bond funds.

I look at bonds vs bond funds in this way: If you need to sell some of your bond funds when you have a loss in the fund, because rates have increased, then you are stuck with that loss. I personally invest in a ladder of bonds that result in a bond maturing each year that matches my need for withdrawals that year. (RMD's) I would call this liability matching. I only invest money in a bond fund when I know that I will not touch that fund for the number of years equal to its duration. But I've read that even that approach can be negatively affected if the fund has been forced to sell bonds.

 

[capjak]

Do you get to see the list of corporate bonds the program invests in? What is a small, sample list with maturity date and coupon rate?

YES, Keep in mind these are not equally purchased some represent $3000 others $50,000

023135BC9
AMAZON COM INC SER B NOTE 3.15000% 08/22/2027 CALL MAKE WHOLE
3.15000% 08/22/2027

037833DP2
APPLE INC NOTE CALL MAKE WHOLE 2.20000% 09/11/2029
2.20000% 09/11/2029


06051GJD2
BK OF AMERICA CORP MTN CALL MAKE WHOLE 1.31900% 06/19/2026
1.31900% 06/19/2026


125581HA9
CIT GROUP INC NOTE 3.92900% 06/19/2024
3.92900% 06/19/2024
102.095

14040HCD5
CAPITAL ONE FINL CORP NOTE 2.60000% 05/11/2023
2.60000% 05/11/2023


172967GT2
CITIGROUP INC NOTE 3.50000% 05/15/2023
3.50000% 05/15/2023

20030NCT6
COMCAST CORP NEW NOTE CALL MAKE WHOLE 4.15000% 10/15/2028
4.15000% 10/15/2028

202795JR2
COMMONWEALTH EDISON CO SER 128 BOND 2.20000% 03/01/2030 CALL MAKE WHOLE
2.20000% 03/01/2030

254687FQ4
DISNEY WALT CO NOTE CALL MAKE WHOLE 3.80000% 03/22/2030
3.80000% 03/22/2030

3138WHPY2
UNIFORM MBS POOL #AS7638 2.50000% 07/01/2031
2.50000% 07/01/2031

3140J6GR2
UNIFORM MBS POOL #BM2007 4.00000% 09/01/2048
4.00000% 09/01/2048

31418CS47
UNIFORM MBS POOL #MA3238 3.50000% 01/01/2048
3.50000% 01/01/2048

31418DPB2
UNIFORM MBS POOL #MA4017 3.00000% 05/01/2040
3.00000% 05/01/2040


38141GVM3
GOLDMAN SACHS GROUP INC MTN 4.00000% 03/03/2024
4.00000% 03/03/2024

404119BT5
HCA INC. NOTE CALL MAKE WHOLE 5.25000% 06/15/2026
5.25000% 06/15/2026

46647PBE5
JPMORGAN CHASE &CO NOTE CALL MAKE WHOLE 2.73900% 10/15/2030
2.73900% 10/15/2030

594918BY9
MICROSOFT CORP NOTE CALL MAKE WHOLE 3.30000% 02/06/2027
3.30000% 02/06/2027

59562VAM9
BERKSHIRE HATHAWAY ENERGY CO BOND 6.12500% 04/01/2036 CALL MAKE WHOLE
6.12500% 04/01/2036


61761J3R8
MORGAN STANLEY SER F MTN 3.12500% 07/27/2026 CALL MAKE WHOLE
3.12500% 07/27/2026

718172BM0
PHILIP MORRIS INTL INC NOTE 3.25000% 11/10/2024
3.25000% 11/10/2024

761713BG0
REYNOLDS AMERICAN INC NOTE 4.45000% 06/12/2025 CALL MAKE WHOLE
4.45000% 06/12/2025

912810FT0
UNITED STATES TREAS SER FEBRUARY 2036 4.50000% 02/15/2036 BDS
4.50000% 02/15/2036

912810QE1
UNITED STATES TREAS BDS 4.62500% 02/15/2040
4.62500% 02/15/2040

912810SL3
UNITED STATES TREAS SER BONDS 2.00000% 02/15/2050 BDS
2.00000% 02/15/2050

912828Z94
UNITED STATES TREAS NTS NOTE 1.50000% 02/15/2030
1.50000% 02/15/2030

912828ZB9
UNITED STATES TREAS NOTE 1.12500% 02/28/2027
1.12500% 02/28/2027

912828ZF0
UNITED STATES TREAS NOTE 0.50000% 03/31/2025
0.50000% 03/31/2025

91324PCP5
UNITEDHEALTH GROUP INC NOTE 3.75000% 07/15/2025 CALL MAKE WHOLE
3.75000% 07/15/2025

94974BGA2
WELLS FARGO &CO MTN 3.30000% 09/09/2024

 

[DrJo]

Some maturity dates are far out there, e.g., 2050. I doubt I’ll live that long. Therefore, I assume it’s best to put a grandchild as the beneficiary of your bond fund ladder, since, as you said, it’s not easy to manage the bonds you own if you cancel the ladder. Thoughts?

 

[capjak]

Some maturity dates are far out there, e.g., 2050. I doubt I’ll live that long. Therefore, I assume it’s best to put a grandchild as the beneficiary of your bond fund ladder, since, as you said, it’s not easy to manage the bonds you own if you cancel the ladder. Thoughts?

Treasuries are very liquid and very safe and can be sold quickly.

I had 25 individual corporate bonds ($350,000) that I held separately for a few months and they are not nearly as liquid although I was able to sell all of them at a profit and the process took about a week.

I will venture to guess that most of us will pass away with Bonds or bond funds in our portfolio so not sure this is much different.

I would agree that Funds like BND are easier to liquidate than a basket of individual Bonds.

In regards to beneficiary I don't think it matters....