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Frequent Contributor

Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

Hey everybody! Sold most of my bond funds when the market corrected pretty severely back in February/ March. Wasn't sure what the Covid 19 situation was going to do, and raised cash to add to equities. Now thinking about adding some bond exposure, MAINLY as ballast for my equity heavy portfolio (~85% equity).

Debating whether I should add back an "all Corporate" bond fund (VICSX), another funds is VFICX which is "heavy" in corporates/ securitized but does have about 11% in Govt., or the third option is good ole VBILX, which is 42% Corporate and 57% Govt. All three funds are investment grade, in that they hold essentially ONLY investment grade bonds. Again, part of my rationale is to provide "ballast" for my equity heavy portfolio, which is pretty large (~7 million). My portfolio looks as if it is large enough now to live off the income when I retire in 2 years, without touching any principal. But the bond funds would be mainly as ballast, but also provide that stable monthly income down the road. Obviously want the higher income component too. 

 

Win
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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

@Win1177right now, I don't think you can beat VBILX for gains, but I have had some good luck, so far, with Vanguard Core Bond Admiral, (VCOBX and I think for higher yield you might consider balancing VBILX with Vanguard Interm-Term Corp Bd Idx,  Admiral, (VICSX), I would choose these over Vanguard Interm-Term Invmt-Grade Inv, (VFICX) at this time because it is more vulnerable to future market downturns.

 

 

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VBILX)?

Corporates are poor ballasts. Mix of governments and corporates VBILX is a decent compromise. See how they did in March bond crash [3/5/20- ]. Also, Edit OP subject to include VBILX.   https://stockcharts.com/h-perf/ui?s=VBILX&compare=VFICX,VICSX&id=p04768923110

YBB
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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFIDX), or mix Corp/ Govt. (VBILX)?

 

VICSX is the most volatile of the three funds and has the highest correlation to stocks. VBILX has generated excellent past returns. However, the fund's current yield/duration may detract from future returns. As a long-term investment, I prefer VFIDX in the current environment. You may also want to consider VCOBX (mentioned below by FatKat).

Link

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Explorer ○○○

Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFIDX), or mix Corp/ Govt. (VBILX)?

Since you mentioned this as a ballast, I would lean more intermediate term government, or if you're real daring 20+ year treasuries if/when they've come down in price a bit (if ever).  The only bond fund that went up in my portfolio during the crash was TLT -- and it rocketed.  Really served its purpose and I wish I owned more of it as my other bond funds cratered (especially munis).  But TLT wouldn't serve this purpose again at its current price.

Now maybe--just maybe--an A-rated corporate bond fund (QLTA) might do OK in another crash, but any other fund heavy BB will see a hit as people think downgrades are around the corner. 

And just so I understand, when you say "ballast" you mean that it will likely go up when equities go down to cushion volatility OR it will just go down "less" than equities?  If the latter, then some investment grade corporates might be OK. If the former, you might need to delve into the morass of alternative funds, long/short equities, or options-based strategies in the current environment.

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFIDX), or mix Corp/ Govt. (VBILX)?

Although VBIRX wasn't in the title of this post, I am interested in comments on it or its etf counterpart BSV.

It held up better than the three funds in the title in the recent corona debacle, so why not use VBIRX/BSV or. choose it as a complement to one or two of the other funds?

Added:  I guess the trade off is lower overall TR with no or little drawdown, hence more ballast, with VBIRX versus the higher performance of the others.  Any other reasons?  @chang , any comments as you have BSV and BIV and VBILX?

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFIDX), or mix Corp/ Govt. (VBILX)?


@Sheryldell wrote:

Although VBIRX wasn't in the title of this post, I am interested in comments on it or its etf counterpart BSV.

It held up better than the three funds in the title in the recent corona debacle, so why not use VBIRX/BSV or. choose it as a complement to one or two of the other funds?


VBIRX/BSV is short-term bond index fund while the others are intermediate-term. That should explain how they did recently.

With ZIRP policy, money-market funds and ST-CDs are paying little. So, if one wants to take some risk, one can go to ultra-ST or ST bond funds [and VBIRX/BSV would fit there]. But for longer horizon, intermediate-term should be fine.

YBB
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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFIDX), or mix Corp/ Govt. (VBILX)?


@Sheryldell wrote:

Although VBIRX wasn't in the title of this post, I am interested in comments on it or its etf counterpart BSV.

It held up better than the three funds in the title in the recent corona debacle, so why not use VBIRX/BSV or. choose it as a complement to one or two of the other funds?

Added:  I guess the trade off is lower overall TR with no or little drawdown, hence more ballast, with VBIRX versus the higher performance of the others.  Any other reasons?  @chang , any comments as you have BSV and BIV and VBILX?


”I guess the trade off is lower overall TR with no or little drawdown” - I think that’s exactly right. BSV (VBIRX) is going to be super conservative — low yield, low volatility.

Frankly, I regret not converting my BSV to BIV a month ago. I transferred a large position in SWSBX from Schwab to TDA, and converted it into BSV (the nearest equivalent). The result is that I own VBILX/BIV and BSV in about a 2:1 ratio. Speaking strictly for myself, BSV is too cash-like, and I should have moved further out on the risk spectrum. Having said that, I am probably going to do nothing in the immediate future. 

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

Win, you are a winner already.

You lost about 2.5 million and was cool, why do you need any ballast? why not invest the 15-20% in VLAIX?

If you need a ballast then you need treasuries which are the best ballast. VG IT VFIUX or LT duration VUSUX. 

BTW, if I lost $100K I would need you to write me a prescription ;-)

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

Corp bonds definately have far better yields vs TIPS and nominal US Treasuries. 

But they do NOT provide good ballast.

IMHO any equity allocation >60% should be paired with US Treasuries only.

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

It was noteworthy that in March bond crash, ST corporates showed as much downside as IT diversified.

YBB
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Explorer ○○

Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

@yogibearbull and others,

How would you compare VBILX and BAGIX for the purposes Win has set out?

I like the idea of consolidating with Vanguard but see relatively little difference in the merits of the two funds.

I am concerned that VBILX is over twice the cost of Bagix in terms of fees ...  .70 vs. .30.

Thoughts?

Thanks,

Steve

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

@Newer_Retiree,

"I am concerned that VBILX is over twice the cost of Bagix in terms of fees ... .70 vs. .30."

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BAGIX = .30 Exp.

VBILX= .07 Exp.

Fishingrod

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Explorer ○○

Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

Thanks Fishingrod I misread that!

@Fishingrod  what do You think of the pros/cons or relative merits of VBILX and Bagix. Any reason to go with one or the other?

Thanks again.

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?


@Win1177 wrote:

...

But the bond funds would be mainly as ballast, but also provide that stable monthly income down the road. Obviously want the higher income component too. 

 


Getting "ballast" and also getting "stable monthly income" sounds a bit like wanting to be faithful to your wife while also wanting to date hot women on the side. You can't have it both ways.

But, with 85% equities, you've clearly decided to accept significant volatility going forward. I guess I'd just keep the 15% in something safe and liquid so you never have to force sell equities at an inopportune moment.

N.

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

@Newer_Retiree,

what do You think of the pros/cons or relative merits of VBILX and Bagix. Any reason to go with one or the other?

______________________________________________________________________________________________

Hi,

I think both funds are very similar. VBILX seems to have a little more duration risk and more BBB as of the latest info I could find.

VBILX has outperformed BAGIX over all time periods that I could see. This is probably because of the higher expense ratio for BAGIX.

Other investors here are more qualified than me to comment on the differences. Also I don't have much free time these days as taking care of ailing family is priority.

Stay healthy.

Fishingrod

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Re: Add bond fund: All corporate (VICSX), Mostly corporate (VFICX), or mix Corp/ Govt. (VFICX)?

Baird is a good bond shop. Strangely, Its ERs are the same for all bond flavors [0.30/0.55] except Ultra-ST [0.15/0.40]. IMO, it can add value for core-plus but probably not so much for aggregate bond and others.   https://www.bairdassetmanagement.com/baird-funds

 
YBB
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