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FatKat
Participant ○○○

A Conservative Bond Fund Thread

This is a thread for anyone who is interested to more conservative bond funds than those funds being discussed elsewhere. When I say a conservative bond fund I mean funds where there is very little risk of lose your investment due to poor credit rated bonds and risk to principle due to rising, or wide fluctuation interest rates.

The trade-off with such bond funds is lower yield. These bond funds are usually owned to provide ballast for the equity side of a portfolio, but they may be used for steady income slightly higher than the yield in money market savings accounts. They might serve as an alternative to CDs where money is tied up for a longer period of time than one wishes to commit.

I am more interested in learning than advising in this thread. Some of the funds I like are well known broad based bond funds, such as IShares AGG and Vanguard VBTLX, Some even more conservative funds are Fidelity FCONX, Vanguard VUSFX, Vanguard VFSUX and Baird BSBIX, all of which have low duration and low expenses. It is not likely that one will lose money investing in these funds and yield is better than money markets  and most CDs with a commitment of a year of less.

Of course we would like to do better than these short term safe funds so we would like to hear thoughts on longer duration bond funds like Dodge and Cox DODIX, and Baird BCOIX and BAGIX, as well as what ever fund you think is better?

What should be avoided is high-priced investment house funds with very high expenses. There are plenty of threads for the discussion of these well liked.

So post at will, but try to follow these simple guidelines.

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136 Replies
chang
Valued Contributor

Re: A Conservative Bond Fund Thread

I moved my VG money market into VUSFX. It’s a no brainer. Low expenses (0.1%), very short duration (0.9 yrs), surprisingly high yield (2.14%). Takes on a smidgen if credit risk. As “sleep easy” as they come.

archer
Participant ○

Re: A Conservative Bond Fund Thread

Maybe it doesn't matter with this kind of fund but VBTLX has AUM 2X that of PIMIX which is often criticized for its enormous AUM. 

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chang
Valued Contributor

Re: A Conservative Bond Fund Thread


@archer wrote:

Maybe it doesn't matter with this kind of fund but VBTLX has AUM 2X that of PIMIX which is often criticized for its enormous AUM. 


That’s an index fund. There is no active management and tiny turnover. So AUM doesn’t really matter.

This isn’t the right thread to talk about VG Total Bond Index.

archer
Participant ○

Re: A Conservative Bond Fund Thread

Good point about it being an index fund. I missed the obvious on that one!

The OPer included it in the OP, which is why I commented on it.

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chang
Valued Contributor

Re: A Conservative Bond Fund Thread


@archer wrote:

Good point about it being an index fund. I missed the obvious on that one!

The OPer included it in the OP, which is why I commented on it.


Oops, you're right. I just re-read the OP, which mentions a number of intermediate duration funds. Personally, I don't think of these as "conservative". To me, "conservative" requires a fairly short duration and no unusual sector concentration or junky holdings. My list (and I am not making any attempt to be comprehensive) would include:

  - ultrashort funds like VUSFX which I mentioned

  - short-term funds (which have longer duration than the ultrashort funds but don't actually yield any more!), such as VCSH

  - conservative MS funds like DBLSX, which has already been mentioned Avogadro's Number of times in other threads

  - other outliers, like WEFIX (which I once owned, but no longer).

I would not include DODIX or BCOIX, even though those are excellent funds and I own them both. I would not include junkies like OSTIX or THOPX. To me, "conservative" in the context of a bond fund has to mean "ain't never gonna lose money".

I guess it depends what you mean by the words you use. Semantics are important here! I suppose I would classify bond funds in this order:

  - “cash substitute”

  - “conservative”

  - “ballast”

  - “highly tactical / active”

  - “aggressive”

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cegibbs
Participant ○

Re: A Conservative Bond Fund Thread

Chang,

Where can you buy DODIX and BCOIX without paying a transaction fee?  I like both funds but have avoided because of the fee.

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chang
Valued Contributor

Re: A Conservative Bond Fund Thread

You can buy $25k of BCOSX (NTF) and convert to BCOIX. Or buy DODIX from DC directly and TOA. Then at Fido it’s $5/add, $0/sell.

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cegibbs
Participant ○

Re: A Conservative Bond Fund Thread

Chang,

Is it your understanding that you can buy BCOSX at Fidelity NTF and
subsequently convert to BCOIX without paying a fee?
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chang
Valued Contributor

Re: A Conservative Bond Fund Thread


@cegibbs wrote:
Chang,

Is it your understanding that you can buy BCOSX at Fidelity NTF and
subsequently convert to BCOIX without paying a fee?

I did exactly that, some years ago. I don’t mind paying $50 if it saves me a lot of trouble, but Fido just makes it soooooo easy!

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dtconroe
Contributor ○○

Re: A Conservative Bond Fund Thread

DODIX and BCOIX have been widely discussed in the Core Plus category, and I don't consider them as lower risk than several multisector and nontraditional bond funds, with lower credit holdings, so I am going to stay away from those bond funds and trust you can read about their risk on other threads where they have been previously discussed.

Here are a few funds that may be worth looking at in more detail:

EALDX/EILDX, FDRXX, SWVXX, FSTFX, ORSTX, BAUSX, FMUSX, VMPAX--they are on my watchlist with a heavy emphasis on gov't bonds, money market alternatives, and short duration Munis.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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yogibearbull
Valued Contributor

Re: A Conservative Bond Fund Thread

@chang, another way to state may be that these are high-quality [investmest-grade] with short/limited durations. These became less attractive when T-Bills & m-mkt funds were paying 2%+, but seem better now.

Look at active FJRLX at Fido or its active ETF cousin FLTB.

VSCSX at Vanguard or its ETF class VCSH. Being inv-gr corps, indexed, it picks up some extra yield.

ETFs MINT [active] & already mentioned FLTB [active], VSCH [passive] almost anywhere commission-free.

Muni FLTDX, NTF at Fidelity & Schwab.

IMO, these can serve as cash-alternatives, portfolio ballasts [stabilizers] or play a role in barbell strategies for bonds [the other end could be with higher rate or credit risk].

YBB
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Win1177
Participant ○○○

Re: A Conservative Bond Fund Thread

First off, THANKS for starting this thread! I’m much more interested in the funds discussed here, as I see bonds (and bond funds) as balancing out the risks of my equity exposure, which is pretty high at 70-75%. I’ve always tended to invest primarily with Vanguard funds, because as a group they seem to be uniformly low cost and err on the conservative side.

My biggest bond fund holdings are VWIUX (Vang. Int. Term Muni fund- by far our largest), VWALX (Vang. High Yield Tax Ex.), and VWLUX (Vang. Limited term Muni fund). We also hold a slug of VWEAX (Vang. High Yield Corporate bond fund). I would NOT put VWALX and VWEAX in the “conservative bond fund category”, as they both have lower rated bonds, as well as longer durations. Although they are both pretty “conservative” compared to some other high yield funds! Hence, I still like them (in modest doses).

I would differ (a little) with Chang about intermediate bonds, as long as you are willing to HOLD the fund as long as the duration of the fund. If one holds the fund for the duration (say 5-6 years), one will generally get “approximately” the starting yield for their total return. So I would include mid to higher quality intermediate funds in “conservative bond funds”, as long as one realizes the longer duration risks one is taking. In our retirement accounts, we hold VBILX (Vang. Int. Term bond index fund), another good conservative bond fund

Win
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FD1001
Valued Contributor

Re: A Conservative Bond Fund Thread

FatCat:This is a thread for anyone who is interested to more conservative bond funds than those funds being discussed elsewhere. When I say a conservative bond fund I mean funds where there is very little risk of lose your investment due to poor credit rated bonds and risk to principle due to rising, or wide fluctuation interest rates.

The only problem with the above is the fact that these funds are affected by interest rates more than the best Multi and/or securitized bond OEFs and we discussed it in the other thread already. 

I'm not trying to bust the party but why another thread when you can ask the same question at the Bond OEF Funds for Longer Term Investors

Below is a chart of DODIX+VBTLX compared to SEMMX+VCFIX to show how you lost money in these months. VBTLX lost 2.5% while SEMMX+VCFIX were up.  Please rethink the word "conservative"

dodix-1.PNG

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norbertc
Contributor ○○

Re: A Conservative Bond Fund Thread

@FD1001 

The advantage of funds like DODIX and VCFIX is that they zagged more than the others when equities zigged this year.  So, they're "conservative" in that sense.

This chart includes VFINX (S&P 500).  Someone with 60% - 75% in equities may care about that.

ScreenHunter 710.png

FD1001
Valued Contributor

Re: A Conservative Bond Fund Thread


@norbertc wrote:

@FD1001 

The advantage of funds like DODIX and VCFIX is that they zagged more than the others when equities zigged this year.  So, they're "conservative" in that sense.

This chart includes VFINX (S&P 500).  Someone with 60% - 75% in equities may care about that.

ScreenHunter 710.png


Please reread the OP...FatCat:This is a thread for anyone who is interested to more conservative bond funds than those funds being discussed elsewhere.

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Win1177
Participant ○○○

Re: A Conservative Bond Fund Thread

Interesting post Norbert! However, the most “zig” really occurred with VBTLX, which appeared to provide the most “ballast” as long as you realize the longer duration (about 5.5 years). Hence, I still believe intermediate term bonds that are mid to higher quality need to be in the “conservative bond” category (at least for me).

Win
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norbertc
Contributor ○○

Re: A Conservative Bond Fund Thread

@Win1177 

I think Pimco's PIGIX (Investment Grade Corporate Bond) is another great conservative bond fund.

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arriba
Participant ○○

Re: A Conservative Bond Fund Thread

PIGIX is a great IB fund, perhaps the best. 

Conservative, well sure, given its portfolio....

BUT....

it has seen periods of VERY HIGH volatility.  

To wit, PIGIX dropped a whopping 7.3% in two months (05/03/13-07/05/13) and it took about 10 months (until 05/09/14) to fully recover that drop.

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norbertc
Contributor ○○

Re: A Conservative Bond Fund Thread

@arriba 

I think you're referring to the infamous 2013 "taper tantrum".  Indeed, quality bond funds got clobbered.

ScreenHunter 711.png

However, stocks recovered rapidly.  A balanced equity + bond portfolio saw limited volatility.

N.

 

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