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Frequent Contributor

VWIUX -> VWLUX?

I went through this thought exercise about 3 months ago, and I’m repeating it.

   DURATION: VWIUX 4.8 yr, VWLUX 6.4 yr

   YIELD: VWIUX 1.5%, VWLUX 2.0%

   AUM: VWIUX $73b, VWLUX $14b

I keep thinking it makes sense to go longer in duration with no threats of inflation or rate hikes. For a substantial increase in yield.

The AUMs however suggest the vast majority of people think that the Intermediate duration fund is in a sweeter spot.

Thoughts? TIA.

PS. I do own VWALX with duration 6.9 yr and 3% yield, in a much larger quantity than VWIUX. Similarly PHMIX. So VWIUX has been a kind of “barbell”.

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Contributor ○

Re: VWIUX -> VWLUX?

Looking at the M* charts, both of them returned exactly the same YTD, with the longterm version behaving like it has more credit risk, notwithstanding the FED program supporting.  I do not think MUNIs are out of the woods - and you already have plenty of MUNI duration and credit risk.  VWIUX probably makes sense. 

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Participant ○○○

Re: VWIUX -> VWLUX?

VWLUX dropped by a lot more than VWIUX during March, VWALX, of course, fell even even more than VWLUX.  I just do not know what COVID-19 is going to do to muni budgets, and how many currently highly rated muni bonds will default.  Credit risk has historically been very low for VWLUX and VWIUX.  But, I just do not want to take that chance.

I've kept a small holding in VWIUX, but I've swapped my VWALX for equities in my taxable account, and equities for LT Treasuries in my IRA.  I've kept a similar % in bonds overall, and even a similar duration, but chosen to eliminate credit risk altogether.  

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Frequent Contributor

Re: VWIUX -> VWLUX?

Chang, 

I would be worried about “reaching” for yield, you’re only getting about a 0.5% increase in yield going out to VWLUX. Rates cannot drop too much more (unless they go negative?). Granted, Vanguard is holding VWLUX duration down in the “intermediate range” at 6.4 years. But I think rates will eventually have to rise, maybe 1-3 years from now. 

My feeling is bonds are for “safety and to offset equity risks” FIRST, so we (wife and I are sticking with VWIUX as the “lions share” of our bond position- about 60-70%. The rest is in VWALX. In our tax free accounts, we also hold primarily Intermediate bonds, rather than long term. If I take on additional risk, I do it more with equities. Just my two cents.

Win
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Frequent Contributor

Re: VWIUX -> VWLUX?

@Win1177 “If I take on additional risk, I do it more with equities.”

Well, L/T munis and equities are different kinds of risk, so the question is, are they correlated? They were in March 2020!

Having thought about it, it seems to me that BIV -> BLV is a better question / option to consider than VWIUX -> VWLUX, because L/T treasuries are less correlated to equities than anything else.

So I’m planning to stick with VWIUX, but I may reduce my BSV (“cash”) and move it into BIV or BLV, or move some of my BIV into BLV.

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Re: VWIUX -> VWLUX?


@chang wrote:

 

<snip>

Having thought about it, it seems to me that BIV -> BLV is a better question / option to consider than VWIUX -> VWLUX, because L/T treasuries are less correlated to equities than anything else.

<snip>


Short-term Treasuries had a lower correlation with the S&P 500 than medium/long term Treasuries for the 1 yr., 3 yr., and 5 yr. periods ending on 06/30/20.

Link

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Frequent Contributor

Re: VWIUX -> VWLUX?

@rila3400 Very interesting (and unexpected), thanks.

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Contributor ○○○

Re: VWIUX -> VWLUX?

 

@chang,

I also did not expect this.
Medium/long term Treasuries had lower correlations to the S&P 500 in the past.

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