USAA bond funds??? Please Help

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FlGal45
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Joined: Thu Jul 12, 2012 10:26 am

USAA bond funds??? Please Help

Post by FlGal45 » Wed Sep 12, 2012 11:43 am

We are retired--husband is retired military. We have brokerage accounts with Vanguard and USAA. We have invested in 4 USAA bond funds over the years: USIBX (Interm), USSBX (short), USATX (Tx Ex Interm), and USSTX (Tx Ex Short). Not long ago I read something about USAA bond funds that they were risky, which has me worried. I went to Mornngstar today and under USIBX it says "risk above average" and gives a BBB for average credit rating of bonds. I know this is a forum for Vanguard funds but I was wondering if anyone out there had any information about USAA's bond funds. I have always trusted USAA but now wonder if I should sell some of our holdings in these funds and move them to VCSH (Vang short-term bond ETF) which we also own. I don't have a premium account with M* so don't have access to their analysis of USAA's bond funds. Sure would appreciate anyone's insite about these funds.
Thank you so much.
FlGal

dbr
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Re: USAA bond funds??? Please Help

Post by dbr » Wed Sep 12, 2012 12:06 pm

USAA does not list an average credit quality for that fund. (I am a 40+ year USAA member and am looking at the data on the member accessible website.) It cannot be correct that the credit quality is BBB. Morningstar may be defaulting that N/A listing. This is a fund of corporate and mortgage backed bonds and therefore more risky than a fund holding treasuries or a broader index of the bond market.

Riskiness of bond funds derives at the first order from credit quality and from duration (basically length of maturity of the bonds held). This fund is indeed somewhat risky because it is intermediate duration and somewhat more risky because it is an investment grade fund (not highest credit quality). The fund is not a low credit quality, aka junk, bond fund, but they do have a "high yield" fund, USHYX, which really is a risky bond fund. USAA does not offer a wide selection of funds that allow the investor more discrimination in setting the risk properties of the investment. The fund expense ratio of this fund, and other USAA bond funds, is on the order of 0.6%-0.7%. This is too expensive to pay for a bond fund. I doubt USAA offers the best options for your purposes.

I would not invest in USAA mutual fund products with the possible exception of S&P Index Fund Member Shares which currently runs an expense ratio of 0.01% after reimbursements.

You can, however, invest in Vanguard mutual funds and/or ETF's at USAA if your investment habits dictate an ability to minimize the effect of transaction costs. An alternative is to simply open accounts at Vanguard and buy Vanguard mutual funds there. There is a minor drumbeat of dissatisfaction with Vanguard service on this forum, but that may be driven by the high sample size of Vanguard customers represented here. I expect USAA would remain a very reliable broker with whom to maintain investments.

pkcrafter
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Re: USAA bond funds??? Please Help

Post by pkcrafter » Wed Sep 12, 2012 12:30 pm

USIBX seems to be a lower quality bond fund--certainly lower than Vanguard's Intermediate Term Investment Grade fund. It's holding a lot of BBB rated bonds. I can't be sure of M*s analysis, but you don't get 4.9% yield from high quality bonds with a duration of 3.2 years. This fund lost almost 16% in 2008, which is another good indicator of it lower quality.

USSBX does appear to be higher quality, short term. The biggest complaint with USAA funds is their costs.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

chaz
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Re: USAA bond funds??? Please Help

Post by chaz » Wed Sep 12, 2012 12:54 pm

I like Vanguard's Total Bond fund.

Look at the forum wiki.

Good luck.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

FlGal45
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Joined: Thu Jul 12, 2012 10:26 am

Re: USAA bond funds??? Please Help

Post by FlGal45 » Wed Sep 12, 2012 1:23 pm

CHAZ -- You like Vanguard Total Bond Fund. So which do you prefer, BND or the fund VBMFX?
We presently have funds in VCSH.
Sounds like I need to move from USAA bond funds to Vanguard for the cheaper expense %.
I don't know what you mean "look at the forum wiki" Please explain.
Thank you
FlGal

Rubiosa
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Re: USAA bond funds??? Please Help

Post by Rubiosa » Wed Sep 12, 2012 1:31 pm

USAIX (USAA's Income Fund, Bonds) is one of the best, IMO. 50+ year member.

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RyeWhiskey
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Re: USAA bond funds??? Please Help

Post by RyeWhiskey » Wed Sep 12, 2012 1:38 pm

FlGal45 wrote:CHAZ -- You like Vanguard Total Bond Fund. So which do you prefer, BND or the fund VBMFX?
We presently have funds in VCSH.
Sounds like I need to move from USAA bond funds to Vanguard for the cheaper expense %.
I don't know what you mean "look at the forum wiki" Please explain.
Thank you
FlGal


I, too, would recommend switching your bond funds to Vanguard.

BND and VBMFX are the same fund (Total US Bond Fund Index). BND is the exchange-traded (ETF) version of the mutual fund VBTLX (admiral shares version of VBMFX). They hold the exact same securities. So it's up to you whether or not you want the ETF or the mutual fund. If you are going to hold under 3k then you want the ETF as the regular fund has a 3k minimum investment (VBMFX) and a 10k minimum for VBTLX. If you have 10k to invest I'd recommend going with the fund rather than the ETF as I believe that ETFs encourage unnecessary trading as they can be traded like a stock.

Here is a link to the forum wiki. You will find loads of valuable information just browsing the links there. :beer
This post was brought to you by Vanguard Total World Stock Index (VTWSX/VT).

NYBoglehead
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Re: USAA bond funds??? Please Help

Post by NYBoglehead » Wed Sep 12, 2012 1:50 pm

I absolutely love USAA, but would switch (as I have) all of my investments to Vanguard for the lower fees. USAA is fantastic for banking and insurance, but not as good as Vanguard for investing.

chaz
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Re: USAA bond funds??? Please Help

Post by chaz » Wed Sep 12, 2012 2:20 pm

FlGal45 wrote:CHAZ -- You like Vanguard Total Bond Fund. So which do you prefer, BND or the fund VBMFX?
We presently have funds in VCSH.
Sounds like I need to move from USAA bond funds to Vanguard for the cheaper expense %.
I don't know what you mean "look at the forum wiki" Please explain.
Thank you
FlGal

The link is on my signature line.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

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Riprap
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Re: USAA bond funds??? Please Help

Post by Riprap » Wed Sep 12, 2012 3:52 pm

Per 3/31/12 Annual Report I received in the mail:

USAA Tax Exempt Intermediate Term Fund (Pie Chart page 15)
AAA - 5.7%
AA - 24.8%
A - 33.0%
BBB - 22.2%
Below Investment Grade - 0.7%
Short Term Investment Grade Ratings - 9.6%
Unrated - 4.0%

USAA Tax Exempt Short Term Fund (Pie Chart page 15)
AAA - 1.1%
AA - 13.4%
A - 27.2%
BBB - 19.6%
Below Investment Grade - 0.1%
Short Term Investment Grade Ratings - 28.7%
Unrated - 9.9%

From note, "Securities included in the Short-Term Investment Grade Ratings category are those that are ranked in the top two short-term credit rating fro the respective rating agency (A-1 & A-2 for S&P, P-1 & P-2 for Moody's, F1 & F2 for Fitch, and R-1 & R-2 for Dominion)"

The AAA, AA, A, and BBB ratings are for long-term credit ratings.

This compares to credit ratings for Vanguard Intermediate Term Tax Exempt (Annual report page 44)

AAA - 17.2%
AA - 51.7%
A - 26.1%
BBB - 3.6%
BB - 0.1%
B or Lower - 0.8%
Not rated - 0.5%

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