johnep wrote: The Fed is holding down rates for treasuries and this has allowed active bond funds that invest more in corporates or other types of bonds to outperform.
kenschmidt wrote:The reason stock index funds outperform their active counterparts is because of lower costs - in terms of both expense ratios and transaction costs associated with turnover. The same is true of bond funds. So when selecting a bond fund, low cost is going to be the most important factor. If you are selecting from Vanguard's bond funds, they are all low cost, so there aren't any bad choices in my opinion. I would focus more on the types of bonds held. Do you want a broad based fund such as Total Bond Index or are you looking for specific types like Treasuries or duration such as Short or Intermediate term?
House Blend wrote:It's not even the right question.
The right question is: "Are lower ER bond funds a better choice?"
The evidence is that as bad as active stock managers do, bond managers much worse odds of beating index, though with as you would logically think, a lower dispersion of returns. The reason is simple, bonds of the same credit rating are much closer substitutes for each other than their stocks are. They are much more likely to have similar returns.
Think Treasuries, the only value added opportunity is guessing on rates, not selection. With investment grade bonds they are going to perform very similarly since most of the risk is rate, not credit. Now in junk bonds there is more idiosyncratic risk so more opportunity, but now trading costs can kill you
When you look say at S&P Active vs Passive scorecard you'll see bond winner persistence always way below stock winner persistence
If interested in more I wrote about this in my book Only Guide to Winning Bond Strategy
baw703916 wrote:Should one not buy VIPSX because it's actively managed?
baw703916 wrote:What is an active bond fund?
Remember that most Vanguard bond funds are "actively managed," at least in the technical sense of not tracking an index.
Should one not buy VIPSX because it's actively managed?
VWITX? (Intermadiate Tax-exempt)
Bustoff wrote:"Active" in the sense that the fund is not constructed to track the performance of a another market-weighted bond index.
Code: Select all
T-Rowe Price PRIPX 7%
DFA DIPSX 9%
Vanguard VIPSX 28%
fundtalker123 wrote:Suppose you only had two bond funds to choose from in your retirement plan, a long bond index with mean duration ~20 years and an active bond fund wherein the manager could adjust the duration at whim. Suppose interest rates were at a historically low point and happened to sharply rise over the next few years. Suppose the active manager correctly guessed this was going to happen and adjusted the duration to ~1 year and then raised it slowly over the next few years as interest rates rose. Suppose the ER for the active fund was 0.5 vs. 0.2 for the index fund. Although I cannot predict the future, it is quite feasible in this case that the active fund could significantly outperform the index fund....this does not seem that unrealistic....so maybe you would think twice if these were the only two funds available
fundtalker123 wrote:Suppose the ER for the active fund was 0.5 vs. 0.2 for the index fund.
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