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Frequent Contributor

Re: Bond fund active management = BS?

chang: VBILX beats DODIX over every time frame. (Add BCOIX if you like ... VBILX still wins every time.)

FD: both DODIX+BCOIX are IG+plus funds. I have been posted about D&C shop for years saying they have had lower performance + higher SD and the only reasonable fund is DODIX but still it;s not a top one and why BCOIX beat it.

I also posted FOR YEARS that VBILX is a great choice because "providing broad exposure to U.S. investment-grade bonds with maturities from five to ten years. Reflecting this goal, the fund invests about 50% of assets in corporate bonds and 50% in U.S. government bonds". So, instead of the Tot US index this combo have a higher SD, higher performance, higher distributions but with the right amount and why it works. With a low ER=0.07% it's harder to beat.

VBILX is so good that even most/all VG managed funds are behind (or similar) and they have low ER.  The only ones who beat it are LT duration.

VBILX also has the "right" amount of lower rating bonds at over 40% in A+BBB rating.

chang: Bond fund active management = BS

FD: Sure, if you want to own a fund for the next 10+ years and have a ballast then VBILX is probably right there at the top.

Is VBILX core or core plus? it's a wide range, BCOIX is more similar to VBILX in rating.  DODIX is closer to Multisector light.  M* rating can be off and why I don't pay attention to them.

What makes it harder to beat VBILX is the fact that we had a great bull run for bonds where rates were going down and that is great for higher-rated bonds.  It was hard to find better funds. 

When I looked at all core + core plus funds at Fidelity.  VBILX ranked for one year top 5, for 3 years top 5, for 5 years top 10, for 10 years top 10-12...wow...chang claim is pretty solid

Can I find better funds to own now? sure, try ANBEX with much better performance + SD + Sharpe and more and why I don't agree with Bilperk that higher performance ALWAYS comes with higher risk.  See (link)

PortfolioCAGRStdevBest YearWorst YearMax. DrawdownSharpe RatioSortino Ratio
ANBEX5.59% 3.38%11.15%0.16%-2.47% 1.242.82
VBILX4.33% 4.15%10.18%-1.18%-4.56% 0.731.24

 

Several more funds to consider:

Total Return % (05/22/2020)YTD1-Year3-Year5-Year10-Year15-Year
VBTLX5.3810.625.1143.814.4
BCOIX3.939.665.114.384.775.31
ANBEX12.5216.547.03   
SCCIX10.5915.477.095.164.395.44
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Re: Bond fund active management = BS?

YBB refers to core plus as “MS light” so they maybe  more than vanilla funds. 


@chang wrote:

@bilperk wrote:

But comparing an IG core PLUS fund with an IG core fund is still a bad comparison.  Again, there are 400+ funds in the IG core category and VBILX beats them all, active or passive.  All the other categories discussed come with more risk, so if they underperform, that is poor alpha.


“Bad comparison” ... yes and no. DODIX and BCOIX are “core plus” and should do better than core. They did worse. The industry’s best and brightest thinkers and analysts ... failed. Over every time period.

I wouldn’t get too hung up on M* labels. It’s more important to understand DODIX and BCOIX and realize that these are basic, conventional, vanilla I/G, I/T bond funds that are using active management to try to generate superior returns. They play around with portfolio duration but generally keep it medium. They play around with the portfolio mix, but rarely own HY. They both have among the lowest ERs of all actively-managed funds.

Perhaps “Core Plus” should more accurately be labeled “Core Minus”?

PIMIX is another category (or, more accurately, no category) altogether. One might as well compare VBILX to Contrafund. The closest PIMCO traditional I/G, I/T Fund is PMDRX, which has been crushed by everything else mentioned.

Again, there are 400+ funds in the IG core category and VBILX beats them all, active or passive.” — And I agree this casts doubt on active management ... my original point.


 

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Participant ○○

Re: Bond fund active management = BS?

US treasuries have had a huge run over the past couple of years due to the Fed cutting rates to near zero. There is not much upside to treasuries in the near future. It's possible interest rates can go negative but the big money has already been made in them. Investing in them now is akin to buying at the top of the market.
VBILX has a 57% allocation to government bonds, its bonds are trading 10% above par, it has a higher risk, downside capture ratio and draw down than it's category.
I think the M* crowd has gotten it wrong by investing in securitization bonds at the beginning of the year, right before the crash, and now with government bonds after a couple of big rate cuts by the Fed.  

Capture.JPG


 

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Frequent Contributor

Re: Bond fund active management = BS?

I will argue that PIGIX (Pimco Investment Grade Bond) is comparable to VBILX and is the better choice.

Starting in 2002 (PIGIX inception), PIGIX has higher returns and lower volatility (maximum drawdown). 

Both hold investment grade debt only, though VBILX has more in Treasuries and PIGIX has some slightly lower grade holdings.

Some might argue that PIGIX takes more risk, which would explain the higher returns. But, 20 years of performance history don't support that view. "Risk" is a tricky concept; there's credit risk, rate risk,  risk and duration risk. VBILX is particularly exposed to rate risk at these levels.

I'll also point that VBILX may be indexed, but its asset allocation is not. 

Yes, PIGIX uses leverage. That's part of the explanation for how it adds alpha.

N.

 

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Frequent Contributor

Re: Bond fund active management = BS?

@norbertc “VBILX is particularly exposed to rate risk at these levels.”

Norbert, with a longer duration (7.27 vs. 6.38) than VBILX, isn’t PIGIX exposed to at least as much interest rate risk?

Interesting that both funds own 46% in corporate bonds, per M* figures.

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Explorer ○○○

Re: Bond fund active management = BS?

Why would anyone pay a mutual fund to do the same thing, or own the same thing, as you can purchase with the 100s and 1000s of etfs available at a fraction of the cost.  Managing what?  Nothing but fees and expenses at your expense.

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Re: Bond fund active management = BS?

FD wrote:  "Can I find better funds to own now? sure, try ANBEX with much better performance + SD + Sharpe and more and why I don't agree with Bilperk that higher performance ALWAYS comes with higher risk.  See (link)"

This is a misleading statement though, FD.  Something can be "risky" even if the risk isn't realized.  It merely means that the POTENTIAL for a poor outcome is present if a certain set of conditions develop.  That those conditions DIDN'T develop, and the poor outcome DIDN'T take place doesn't mean the path wasn't "risky". 

Just because something is working (now) doesn't mean it is without risk (in the future).  We saw this in the panic when some of those 'risk free' assets ended up being anything but!

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Explorer ○○○

Re: Bond fund active management = BS?

Because some chart shows something as a buy, does not mean it will actually occur.  It is only based upon a certain set of data at that particular point in time.  Data and events occur with split second speed as we have just witnessed with the prices of all stocks and bonds dropped precipitously and without any warning whatsoever, example look at March 23rd.  If I was staring at some chart all day, and suddeny it dropped out of sight, i would be left to scratch my head.  Dah, what happen?

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Frequent Contributor

Re: Bond fund active management = BS?

For another view on the long-term effect of Corporate vs. Government bonds, and Passive vs. Active management, look at VBLAX (LT index fund with 50% Govt) versus VWESX (LT active fund with mostly corporates). The LT charts are almost identical.

When I look at charts like this, I wonder if it’s worth paying a company like PIMCO 0.70 - 0.80+ % gross expenses. If the role of bonds in my portfolio is mainly ballast.

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Frequent Contributor

Re: Bond fund active management = BS?


@norbertc wrote:

I will argue that PIGIX (Pimco Investment Grade Bond) is comparable to VBILX and is the better choice.

Starting in 2002 (PIGIX inception), PIGIX has higher returns and lower volatility (maximum drawdown). 

Both hold investment grade debt only, though VBILX has more in Treasuries and PIGIX has some slightly lower grade holdings.

Some might argue that PIGIX takes more risk, which would explain the higher returns. But, 20 years of performance history don't support that view. "Risk" is a tricky concept; there's credit risk, rate risk,  risk and duration risk. VBILX is particularly exposed to rate risk at these levels.

I'll also point that VBILX may be indexed, but its asset allocation is not. 

Yes, PIGIX uses leverage. That's part of the explanation for how it adds alpha.

N.

 


PIGIX is not as close to VBILX as others such as BCOIX because it has HY and EM bonds

Fund NamePIMCO Investment Grade Credit Bond Fund
Total Fund Net Assets ($US MM)14,513.0
Effective Duration (Years)7.15
Sector Allocation (%)1MV 
US Government-Related220.12 
Securitized 613.70 
Invest. Grade Credit62.00 
High Yield Credit7.75 
Non-U.S. Developed1.35 
Emerging Markets 314.20 
Other 43.98 
Net Other Short Duration Instruments 5-23.09 

 4 above = Where permitted by the investment guidelines stated in the portfolio’s offering documents; “other” may include exposure to convertibles, preferred, common stock, equity-related securities and yankee bonds.

So, basically PIGIX has over 25% invested outside the "norm".

PIGIX lags for YTD and 1-3 years, closer for 5 years and better for 10-15.

Total Return % (05/22/2020)YTD1-Year3-Year5-Year10-Year15-Year
PIGIX-0.696.934.964.856.146.62
VBILX6.2111.955.644.54.845.22

 

But wait, if you are looking also for a ballast fund, PIGIX failed which is what a typical investor is looking from IG bonds.  YTD chart below shows it.  This is why the 3 year SD=volatility of PIGIX=6.9 while VBILX=4 but in reality it's much worse.  PV (link) for YTD shows that PIGIX SD=20 and VBILX=6.   At the bottom on 3/19 for bonds.  PIGIX was down over 12% for YTD while VBILX was down less than 1.5%  (BCOIX was down about 3.7%).  This is why a typical IG bond must have a larger % in US Gov bonds.

pigix.PNG

But, if an investor understands the funds and its risk he/she owns then it's OK to use managed funds and especially black boxes from Pimco.  BTW, PIGIX+PIMIX duo were once a big portion of my portfolio, the Pimco mojo isn't as good as before.

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Explorer ○○○

Re: Bond fund active management = BS?


@racqueteer wrote:

FD wrote:  "Can I find better funds to own now? sure, try ANBEX with much better performance + SD + Sharpe and more and why I don't agree with Bilperk that higher performance ALWAYS comes with higher risk.  See (link)"

This is a misleading statement though, FD.  Something can be "risky" even if the risk isn't realized.  It merely means that the POTENTIAL for a poor outcome is present if a certain set of conditions develop.  That those conditions DIDN'T develop, and the poor outcome DIDN'T take place doesn't mean the path wasn't "risky". 

Just because something is working (now) doesn't mean it is without risk (in the future).  We saw this in the panic when some of those 'risk free' assets ended up being anything but!


+1  

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Frequent Contributor

Re: Bond fund active management = BS?


@kzug wrote:

@racqueteer wrote:

FD wrote:  "Can I find better funds to own now? sure, try ANBEX with much better performance + SD + Sharpe and more and why I don't agree with Bilperk that higher performance ALWAYS comes with higher risk.  See (link)"

This is a misleading statement though, FD.  Something can be "risky" even if the risk isn't realized.  It merely means that the POTENTIAL for a poor outcome is present if a certain set of conditions develop.  That those conditions DIDN'T develop, and the poor outcome DIDN'T take place doesn't mean the path wasn't "risky". 

Just because something is working (now) doesn't mean it is without risk (in the future).  We saw this in the panic when some of those 'risk free' assets ended up being anything but!


+1  


-1   that was easy

racqueteer 

Your statement is inaccurate misleading too :-)

You need to define the risk, the length and what are your parameters? it's an endless set of requirements.

Are you saying I can't find funds with better performance + better risk attributes(SD,Sharpe,Max Draw...) compared to other funds?  I have plenty of examples.  Will they always be better in every market condition? nobody can predict or guarantee that.

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Re: Bond fund active management = BS?


@chang wrote:

The only PIMCO fund that makes any sense to compare here is Moderate Duration Fund PMDRX. Its duration is 4.70 vs. DODIX at 4.20 (latest M* stats fwiw).

VBILX beats BCOIX beats DODIX beats PIMCO.

https://www.pimco.com/en-us/investments/mutual-funds/moderate-duration-fund/inst

An intermediate-term core bond investment

PIMCO Moderate Duration Fund is a core bond fund that provides broad market exposure to high-quality, intermediate-term fixed income securities. The Fund is managed for an overall portfolio duration ranging between two and five years. Following PIMCO’s signature total return philosophy and process, it employs a variety of strategies to enhance return potential and manage overall portfolio risk.”


I agree Chang,

VBILX has done very well and DODIX has not been able to do any magic lately. The only Pimco fund that paid off well for me was PIGIX last year. I have converted over most of my VBTLX to this fund. I like this fund along with BAGIX and VCOBX, but as of this date VBILX is the best earner!

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Re: Bond fund active management = BS?

 

The trailing total returns for VBILX are excellent. The fund's category returns are in the top 5% for the 1 yr., 3yr., 5yr., 10 yr., and 15 yr. periods. VBILX outperformed its larger brother, VBTLX, primarily because it held more corporate bonds and omitted lower-yielding government mortgages. With a 1.4% yield to maturity and a 6.4 yr. duration, I do not expect VBILX to generate excellent long-term returns in the future. Looking ahead, VFIDX may prove to be a better choice. This fund strikes a good risk/reward balance. VFIDX generally allocates 65% - 80% of its portfolio to corporate bonds with only a miniscule amount in junk bonds. M* places it in the corporate bond category, but many of its "peers" have a much higher allocation to corporates. Consequently, VFIDX may lag during credit rallies and provide greater downside protection during sell-offs. 

VG Bonds.JPG

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Frequent Contributor

Re: Bond fund active management = BS?


@myob wrote:

Why would anyone pay a mutual fund to do the same thing, or own the same thing, as you can purchase with the 100s and 1000s of etfs available at a fraction of the cost.  Managing what?  Nothing but fees and expenses at your expense.


How long have you been managing bond portfolios?  Managing what?  Where do I begin?  The global opportunity set is immense.  Things like what bond asset classes are good value to increase exposure and which are over-valued to be de-emphasized.  

How about interest rate risk.  When to be on offense and when to be on defense?  What duration to have?  What countries to take your exposure and which to underweight. 

How about Agency MBS.  Fair value?  When and what to add and when or start cutting back in exposure.  

How about Non-Agency MBS.  In both this and the above, which sectors do you buy?  All conservative or take a little reasonable risk.  

How about corporate credit?  Where and what  Lots of beta risk with bankruptcies and restructuring.  What sectors for high exposure and which for low exposure.  Almost need to add on a bond by bond basis.  

How about EM?  Which countries?  Local currencies?  Sovereigns?  Frontier markets?

I certainly don't have the skills to navigate the above and will gladly outsource to 30 year bond veterans to do.  

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Re: Bond fund active management = BS?


@FD1001 wrote:

@kzug wrote:

@racqueteer wrote:

FD wrote:  "Can I find better funds to own now? sure, try ANBEX with much better performance + SD + Sharpe and more and why I don't agree with Bilperk that higher performance ALWAYS comes with higher risk.  See (link)"

This is a misleading statement though, FD.  Something can be "risky" even if the risk isn't realized.  It merely means that the POTENTIAL for a poor outcome is present if a certain set of conditions develop.  That those conditions DIDN'T develop, and the poor outcome DIDN'T take place doesn't mean the path wasn't "risky". 

Just because something is working (now) doesn't mean it is without risk (in the future).  We saw this in the panic when some of those 'risk free' assets ended up being anything but!


+1  


-1   that was easy

racqueteer 

Your statement is inaccurate misleading too :-)

You need to define the risk, the length and what are your parameters? it's an endless set of requirements.

Are you saying I can't find funds with better performance + better risk attributes(SD,Sharpe,Max Draw...) compared to other funds?  I have plenty of examples.  Will they always be better in every market condition? nobody can predict or guarantee that.


I go to some lengths to say EXACTLY what I mean, FD; don't read in stuff that isn't expressly stated.  I indicated that 'risk' means you can have a "poor outcome".  YOU would have to decide what that means for YOU; since others might define it differently.  The definition and specifics are irrelevant to my point.  If there is the potential for a "poor outcome" (however one defines that), then risk exists.  If the "poor outcome" is potentially LARGE, then so is the 'risk'.  Whether or not the poor outcome is actually realized (only known after the fact) doesn't have anything to do with whether or not the risk existed (beforehand).  If you disagree with any of what I actually wrote here, then it's pointless to discuss it further; as our understanding of words must be incompatible.

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Frequent Contributor

Re: Bond fund active management = BS? [M* Corporate Bonds]

@rila3400 , M* Corporate Bond category may have slightly higher duration than IT-core or IT-core-plus [04/2019- ]. It obviously has more US investment-grade corporates [65%+] but not all; the rest may be in foreign, HY, EM, etc. Think of it as IT-core++. There aren't many funds in M* Corporate Bond category. I think that if IT-core+ existed before, M* wouldn't have created this category, but here we are with a sort of now redundant category.

Corporate Bond
Corporate bond portfolios concentrate on investment-grade bonds issued by corporations in U.S. dollars,
which tend to have more credit risk than government or agency-backed bonds. These portfolios hold
more than 65% of their assets in corporate debt, less than 40% of their assets in non-U.S. debt, less
than 35% in below-investment-grade debt, and durations that typically range between 75% and 150% of
the three-year average of the effective duration of the Morningstar Core Bond Index.

YBB
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Contributor ○○○

Re: Bond fund active management = BS?


@racqueteer wrote:

………... Something can be "risky" even if the risk isn't realized.  It merely means that the POTENTIAL for a poor outcome is present if a certain set of conditions develop.  That those conditions DIDN'T develop, and the poor outcome DIDN'T take place doesn't mean the path wasn't "risky". 

Just because something is working (now) doesn't mean it is without risk (in the future).  We saw this in the panic when some of those 'risk free' assets ended up being anything but!



+1

I call that "absolute or total risk". SD+Sharpe etc. are risk measurement between funds for comparision.

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Frequent Contributor

Re: Bond fund active management = BS?


@racqueteer wrote:

@FD1001 wrote:

@kzug wrote:

@racqueteer wrote:

FD wrote:  "Can I find better funds to own now? sure, try ANBEX with much better performance + SD + Sharpe and more and why I don't agree with Bilperk that higher performance ALWAYS comes with higher risk.  See (link)"

This is a misleading statement though, FD.  Something can be "risky" even if the risk isn't realized.  It merely means that the POTENTIAL for a poor outcome is present if a certain set of conditions develop.  That those conditions DIDN'T develop, and the poor outcome DIDN'T take place doesn't mean the path wasn't "risky". 

Just because something is working (now) doesn't mean it is without risk (in the future).  We saw this in the panic when some of those 'risk free' assets ended up being anything but!


+1  


-1   that was easy

racqueteer 

Your statement is inaccurate misleading too :-)

You need to define the risk, the length and what are your parameters? it's an endless set of requirements.

Are you saying I can't find funds with better performance + better risk attributes(SD,Sharpe,Max Draw...) compared to other funds?  I have plenty of examples.  Will they always be better in every market condition? nobody can predict or guarantee that.


I go to some lengths to say EXACTLY what I mean, FD; don't read in stuff that isn't expressly stated.  I indicated that 'risk' means you can have a "poor outcome".  YOU would have to decide what that means for YOU; since others might define it differently.  The definition and specifics are irrelevant to my point.  If there is the potential for a "poor outcome" (however one defines that), then risk exists.  If the "poor outcome" is potentially LARGE, then so is the 'risk'.  Whether or not the poor outcome is actually realized (only known after the fact) doesn't have anything to do with whether or not the risk existed (beforehand).  If you disagree with any of what I actually wrote here, then it's pointless to discuss it further; as our understanding of words must be incompatible.


Words like "risk" and "potential" need to be defined and quantified.  Otherwise it's a discussion without actual investment consequences.  Do you have data and actual funds to back it up?  you know very well that if you mention actual funds I can debunk the claim that extra income or performance must have extra risk.

So, if you just want to keep the discussion as "potential" you are right. Potentially, if interest rates go up fast treasuries will lose more than most.  Index funds are easier to quantify and measure but not managed funds.  Are you saying there is no way one fund can deliver better income/performance with better SD?

You are trying to hide behind words, please define risk first and secondly please prove with actual funds and data that my statement was misleading.

 

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Frequent Contributor

Re: Bond fund active management = BS?


@FD1001 wrote:

Words like "risk" and "potential" need to be defined and quantified.  Otherwise it's a discussion without actual investment consequences.  Do you have data and actual funds to back it up?  you know very well that if you mention actual funds I can debunk the claim that extra income or performance must have extra risk.

So, if you just want to keep the discussion as "potential" you are right. Potentially, if interest rates go up fast treasuries will lose more than most.  Index funds are easier to quantify and measure but not managed funds.  Are you saying there is no way one fund can deliver better income/performance with better SD?

You are trying to hide behind words, please define risk first and secondly please prove with actual funds and data that my statement was misleading.

 


Paul:  I am jumping in and taking the bait.  I will mention PIMIX/PONAX/PIPNX.  Now, go ahead FD, debunk away.  

Note:  by debunk, the implication is that something was a grossly exaggerated or foolish claim.

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