Question about Bond ETF's

[FiveDriver]

I'm looking to increase the Bond portion of my Asset Allocation in 2024. I think that Interest Rates will start to drop in Q2 or thereabouts.

I currently own TLT (Long Duration ETF) and some FXNAX. I have been using Fido's Money Markets as part of my Bond Allocation, but I think the 5% yields in MM will soon start to drop off.

If Interest Rates do start to fall, a longer duration ETF might increase their NAV more rapidly, is that correct ??

Should I just add to my TLT ??

Or would any of the low expense ratio Vanguard ETF's provide a better boost ? BIV is their Intermediate Term. How about something like LQD ??

Would like to start a Dollar Cost Average program.

 

[Sunset]

A long term bond will go up in value when rates drop, problem with a Bond Fund is you don't control it, so will the NAV go up as fast, or slower due to other buying in diluting the effect or the Fund selling and they sell across the holding to maintain the same percentages.

 

[FiveDriver]

Thank you Sir.
I was just looking at the NAV performance over the recent Nov - Dec timeframe, and the TLT Treasury ETF really has performed quite well. I've been buying more of it on dips. I may just DCA into it as conditions warrant.

LQD has had a good move in the recent timeframe when Interest Rates have dropped. For diversification....I might add some Corporate Bonds.

 

[Marc]

I've been in FTBFX for last 15 years; it serves as my fixed income portion of my portfolio. FZDXX serves as the cash portion of my portfolio. FTBFX has (had?) a barbell type allocation with plenty of corporate bonds. Yes, I rode it down over the last couple of years and I will ride it back up as interest rates stabilize and then go down (who knows how far or when). I have not been a market timer for the last 44 years and not about to start now.

I cannot imagine how a bond ETF works as, to me, ETFs are "fixed" portfolios that don't throw off any capital gains. I guess a bond ETF would have to hold until maturity but I don't know.

Marc

 

[GoBears]

FTBFX is an actively managed fund and the Fidelity website shows the latest annual turnover rate at 177%, so the bonds are not held to maturity. The website also indicates FTBFX has distributed capital gains in seven out of the last ten years. None in 2022 or 2023, probably because enough bonds were sold at a loss to offset capital gains.

 

[FiveDriver]

FTBFX is an actively managed fund and the Fidelity website shows the latest annual turnover rate at 177%, so the bonds are not held to maturity. The website also indicates FTBFX has distributed capital gains in seven out of the last ten years. None in 2022 or 2023, probably because enough bonds were sold at a loss to offset capital gains.

Thanks guys, for your insights here. I'm going to add FTBFX to my WatchList.
I like the idea of the actively managed MF approach. My Bond allocation is in my IRA, so Cap Gains are OK by me.

I wouldn't call myself a Market Timer, but more of a Market Watcher. When the Feds started talking about raising Interest Rates in March 2022, I moved some money out of the QQQ's and into FZDXX. The time is now approaching to re-deploy.

 

[mrfeh]

Thanks guys, for your insights here. I'm going to add FTBFX to my WatchList.
I like the idea of the actively managed MF approach. My Bond allocation is in my IRA, so Cap Gains are OK by me.

I wouldn't call myself a Market Timer, but more of a Market Watcher. When the Feds started talking about raising Interest Rates in March 2022, I moved some money out of the QQQ's and into FZDXX. The time is now approaching to re-deploy.

If you are making changes to your portfolio because of predictions of the future (and that's what you're doing), you are timing the market.

I suggest you choose an asset allocation and stick with it.

 

[Marc]

FTBFX is an actively managed fund and the Fidelity website shows the latest annual turnover rate at 177%, so the bonds are not held to maturity. The website also indicates FTBFX has distributed capital gains in seven out of the last ten years. None in 2022 or 2023, probably because enough bonds were sold at a loss to offset capital gains.

I know.

 

[FiveDriver]

Looking thru bogleheads.com over a cup of coffee this AM. One of their posters did a deep dive on these Bond Funds and produced some good data. It shows that FTBFX, Fido's Total Bond Fund has outperformed both the other VG and Fido Funds mentioned above. They do this by holding some BBB and lower rated Bonds (varying around 12% or so). This is, of course, balanced by holding 85% of Investment Grade Bonds, and by actively managing the whole portfolio.

https://www.bogleheads.org/forum/viewtopic.php?t=416868

When I combine the FTBFX with my TLT Holdings, I will have achieved what I'm looking for in Fixed Income.

Thanks again for all the pointers here.....good discussion.

 

[pb4uski]

...I cannot imagine how a bond ETF works as, to me, ETFs are "fixed" portfolios that don't throw off any capital gains. I guess a bond ETF would have to hold until maturity but I don't know.

Marc

An ETF is just a different legal structure for a mutual fund. In fact, many EFFs have mutual fund equivalents. So a bond ETF is just a different structure for a bond fund. It can be indexed or managed.

So a bond ETF does not have to hold to maturity. The most notable example being BND, the Vanguard Total Bond ETF, which is the ETF versus of the Vanguard Total Bond fund.

Also, there are some target maturity bond ETFs from BlackRock and Invesco that are like owing an proprotional interest of a portfolio of bonds that all mature in a specified year.

 

[Phroig]

Fidelity also offers a Total Bond ETF, FBND. I believe the fund has performed slightly better than the ETF despite a higher expense ratio,