Fine Tuning Bond Investment

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jornsy
Posts: 16
Joined: Tue Jul 10, 2012 4:21 pm

Fine Tuning Bond Investment

Post by jornsy » Wed Jul 25, 2012 2:11 pm

Below are my two choices for Bond funds in my 403b.
  • -Fidelity Spartan U.S. Bond Index Fund - Institutional Class (FXSTX), management fee = .07

    -PIMCO Total Return Inst CL (PTTRX), management fee = .46
I plan on using the Fidelity Spartan Total Market Index Fund - Institutional Class (FSKTX) for my stock fund, so I didn't know which one would be a better for my mix. I'm leaning towards the Spartan Bond Index because of the much lower management fee, but the PIMCO has slightly better returns over the 3, 5 and 10 year.

Your thoughts?

mackstann
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Re: Fine Tuning Bond Investment

Post by mackstann » Wed Jul 25, 2012 2:15 pm

Hard to go wrong, really. Historically, Total Return has done well compared to bond index funds, with high consistency. Will that persist? Maybe. You might even say probably... but no one can say for certain. I might be tempted to go 50/50 in your situation.
It does not matter how slowly you go so long as you do not stop.

jornsy
Posts: 16
Joined: Tue Jul 10, 2012 4:21 pm

Re: Fine Tuning Bond Investment

Post by jornsy » Wed Jul 25, 2012 3:47 pm

Here is some more information on the two bond fund choices for my 403b.

Spartan PIMCO Barclays
Bond Index Tot Return Aggregate Bond

1 Year 7.62 6.96 7.47
3 Year 6.82 8.68 6.93
5 Year 6.23 9.23 6.79
10 Year 5.45 6.98 5.63
Life 7.00 8.34 7.32

Is the PIMCO higher returns worth the almost .4 higher management fee (PIMCO=.46; Spartan Tot Bond=.07)?

mackstann
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Re: Fine Tuning Bond Investment

Post by mackstann » Wed Jul 25, 2012 4:15 pm

Keep in mind that the expense ratio is already figured into those return numbers. So clearly Total Return has done better, regardless of what it costs.
It does not matter how slowly you go so long as you do not stop.

Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Fine Tuning Bond Investment

Post by Valuethinker » Wed Jul 25, 2012 4:23 pm

jornsy wrote:Below are my two choices for Bond funds in my 403b.
  • -Fidelity Spartan U.S. Bond Index Fund - Institutional Class (FXSTX), management fee = .07

    -PIMCO Total Return Inst CL (PTTRX), management fee = .46
I plan on using the Fidelity Spartan Total Market Index Fund - Institutional Class (FSKTX) for my stock fund, so I didn't know which one would be a better for my mix. I'm leaning towards the Spartan Bond Index because of the much lower management fee, but the PIMCO has slightly better returns over the 3, 5 and 10 year.

Your thoughts?
Bill Gross at PIMCO is one of the world's great bond fund managers. Unfortunately his fund is now huge (that's less of a problem than with an active stock fund, but it's an issue) and whilst he made a brilliant call (betting in the spring of 2008 that the US government would bail out Freddie and Fannie) he also made a bad call (betting that fears of the deficit and inflation would hammer US Treasury bonds last year).

In short he is not superhuman.

Whereas with the Fidelity fund you don't need to rely on the genius of one guy now well into his 60s. I'd go with the Fidelity fund.

2retire
Posts: 367
Joined: Wed Jun 13, 2012 9:00 am

Re: Fine Tuning Bond Investment

Post by 2retire » Wed Jul 25, 2012 4:26 pm

Although people on here like to bad mouth actively managed funds, PTTRX is a great fund to own (even at those expense ratios). Although it had a large hiccup late last year, in less than 6 months it has made up almost all of the difference. I keep an old 401K active just so I can get access to that fund ($1M min to invest).

livesoft
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Re: Fine Tuning Bond Investment

Post by livesoft » Wed Jul 25, 2012 5:34 pm

Last year PIMCO Total Return missed the boat and trailed significantly behind Total Bond Market (check the charts around June-Sept). Since then it has recovered nicely. My conclusion is that PIMCO Total Return is riskier.

So ... there is no way to predict the future. Perhaps you should buy some of both?
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Dandy
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Re: Fine Tuning Bond Investment

Post by Dandy » Thu Jul 26, 2012 10:28 am

The challenge for the active managed bond fund that is so successful is that its assets grow so large it is very difficult to keep up the performance. Either it becomes a defacto index fund or has to take on more risk, make big bets, or make selections that they wouldn't otherwise make. In this very unusual interest rate/bond market on one hand it is difficult to make up a yearly 40 basis point advantage of the index fund - on the other hand it might be tempting to have a bond market expert navigating the choppy seas rather than a passive index.

Normally, I would say go for the index especially with such a low ER. At this time I could see 25% in the active managed fund. If you have access to a stable value fund, CDs or a short term idex fund I would like that better than the acitve managed bond fund even one managed by Bill Gross.

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