Why did TBM lag behind other bond funds this year?

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gambino
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Why did TBM lag behind other bond funds this year?

Post by gambino » Fri Jan 01, 2016 6:39 pm

Hi, first time poster. Thanks for your patience with me.

I have been looking over the 1 year performance for the Vanguard bond funds and noticed that Total Bond Market lagged behind all of the other intermediate and short term funds (besides TIPS). Can anyone explain why?

It seems like the return for TBM would be close to a composition of the returns for Intermediate Treasury, GNMA, and Intermediate Investment Grade but each of those outperformed it by more than 1% over the year. Even Short Term Index outperformed it by half a percent.

Is it because a lot of people are selling their shares of TBM? Would that even affect the NAV or is the return mostly determined by the performance of the actual bonds in the fund?

Thanks for your help.

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Re: Why did TBM lag behind other bond funds this year?

Post by oldcomputerguy » Fri Jan 01, 2016 7:37 pm

I'm no expert, but looking at Vanguard TBM, I note that it has a significant percentage of commercial bonds (which may have suffered from the market downturn) as well as a smattering of foreign (which from what I read tends to be more volatile). That may account for it.
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alpenglow
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Re: Why did TBM lag behind other bond funds this year?

Post by alpenglow » Fri Jan 01, 2016 7:46 pm

I haven't looked too carefully, but I'll point out that Total Bond covers all bond maturities, including long bonds, which are about 16% of TBM. Long bonds didn't have a positive year.

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Re: Why did TBM lag behind other bond funds this year?

Post by livesoft » Fri Jan 01, 2016 9:07 pm

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edge
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Re: Why did TBM lag behind other bond funds this year?

Post by edge » Fri Jan 01, 2016 9:17 pm

TBM has long term bonds along with short and intermediate. Long term bonds were down about 4%. Short term and intermediate bonds were up around 1%.

lack_ey
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Re: Why did TBM lag behind other bond funds this year?

Post by lack_ey » Fri Jan 01, 2016 9:43 pm

For reference:
Image
Image

Long corporates had a worse year than long Treasuries, with both those being negative. Total bond doesn't have any junk, though, and that did worse.

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Re: Why did TBM lag behind other bond funds this year?

Post by abuss368 » Fri Jan 01, 2016 10:01 pm

Not sure but stay the course!
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cfs
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Re: Why did TBM lag behind other bond funds this year?

Post by cfs » Fri Jan 01, 2016 10:14 pm

This is a money maker for Vanguard.
Is it because a lot of people are selling their shares of TBM?
I don't think so. Characteristics as of 11/30/2015, fund total net assets $147.9 billion. If you have this bond fund in your portfolio then my unqualified recommendation would be to keep it.

Good luck with your investments in 2016.
~ Member of the Active Retired Force since 2014 ~

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arcticpineapplecorp.
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Re: Why did TBM lag behind other bond funds this year?

Post by arcticpineapplecorp. » Fri Jan 01, 2016 10:14 pm

smartinwate wrote:I'm no expert, but looking at Vanguard TBM, I note that it has a significant percentage of commercial bonds (which may have suffered from the market downturn) as well as a smattering of foreign (which from what I read tends to be more volatile). That may account for it.
Huh...I had no idea TBM contained a smattering of foreign (6.3% according to https://personal.vanguard.com/us/funds/ ... =INT#tab=2). I thought it was all U.S.,(as opposed to the total international bond market index fund) but I guess not.

That's what I love about bogleheads...I always learn something new. Thanks.
Last edited by arcticpineapplecorp. on Fri Jan 01, 2016 10:15 pm, edited 1 time in total.
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Taylor Larimore
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Re: Why did TBM lag behind other bond funds this year?

Post by Taylor Larimore » Fri Jan 01, 2016 10:15 pm

gambino wrote:Hi, first time poster. Thanks for your patience with me.

I have been looking over the 1 year performance for the Vanguard bond funds and noticed that Total Bond Market lagged behind all of the other intermediate and short term funds (besides TIPS). Can anyone explain why?

It seems like the return for TBM would be close to a composition of the returns for Intermediate Treasury, GNMA, and Intermediate Investment Grade but each of those outperformed it by more than 1% over the year. Even Short Term Index outperformed it by half a percent.

Is it because a lot of people are selling their shares of TBM? Would that even affect the NAV or is the return mostly determined by the performance of the actual bonds in the fund?

Thanks for your help.
gambino:

Welcome to the Bogleheads Forum!

According to Morningstar, Total Bond Market Index Fund Admiral ($10,000 minimum) was in the top 25% of all bond funds in its 1,005 intermediate-term fund category during 2015: http://www.morningstar.com/funds/xnas/vbtlx/quote.html

Bonds are primarily for safety and stocks are best for higher returns. It is unfortunate that bonds are often ranked by return because higher return nearly always means higher risk.

Vanguard Total Bond Market Index Fund is now the largest bond fund in the world--for good reasons.

Happy New Year!
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Why did TBM lag behind other bond funds this year?

Post by saltycaper » Fri Jan 01, 2016 10:31 pm

arcticpineapplecorp. wrote:
smartinwate wrote:I'm no expert, but looking at Vanguard TBM, I note that it has a significant percentage of commercial bonds (which may have suffered from the market downturn) as well as a smattering of foreign (which from what I read tends to be more volatile). That may account for it.
Huh...I had no idea TBM contained a smattering of foreign (6.3% according to https://personal.vanguard.com/us/funds/ ... =INT#tab=2). I thought it was all U.S.,(as opposed to the total international bond market index fund) but I guess not.
Just an FYI... the international bonds in Total Bond Market are all US-dollar denominated. The international bonds in Total International Bond are all non-US-dollar denominated, though they are currency hedged.
Quod vitae sectabor iter?

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Re: Why did TBM lag behind other bond funds this year?

Post by saltycaper » Fri Jan 01, 2016 10:42 pm

The differences in return are a good example of how bond funds with similar credit quality and similar duration can vary in performance. Even if they have the same duration, a bond fund with short-, intermediate-, and long-term holdings will not respond to changes in interest rates the same way as a fund with only intermediate holdings, if the structure of the yield curve changes.
Quod vitae sectabor iter?

jimkinny
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Re: Why did TBM lag behind other bond funds this year?

Post by jimkinny » Sat Jan 02, 2016 5:45 am

If you are interested, the boglehead wiki has a good article on bonds and risks of bonds. You have to understand the risks associated with different types of bonds in order to understand performance.

jim

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Re: Why did TBM lag behind other bond funds this year?

Post by indexlover » Sat Jan 02, 2016 8:31 am

Bonds are primarily for safety and stocks are best for higher returns. It is unfortunate that bonds are often ranked by return because higher return nearly always means higher risk.
What sage wisdom !!!

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Re: Why did TBM lag behind other bond funds this year?

Post by Valuethinker » Sat Jan 02, 2016 9:17 am

arcticpineapplecorp. wrote:
smartinwate wrote:I'm no expert, but looking at Vanguard TBM, I note that it has a significant percentage of commercial bonds (which may have suffered from the market downturn) as well as a smattering of foreign (which from what I read tends to be more volatile). That may account for it.
Huh...I had no idea TBM contained a smattering of foreign (6.3% according to https://personal.vanguard.com/us/funds/ ... =INT#tab=2). I thought it was all U.S.,(as opposed to the total international bond market index fund) but I guess not.

That's what I love about bogleheads...I always learn something new. Thanks.
I think these are what are called "foreign" bonds ie foreign issuers, but issuing in USD in the US market.

The alternative is they are "dollar Eurobonds". Paying out in dollars, but issued in international markets -- by US companies or by international ones.

So they have credit risk, but given the nature of the issuers (multinationals, blue chip, investment grade) no currency risk. A USD bond issued by Nestle is going to be at least as creditworthy as one issued by P&G.

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Phineas J. Whoopee
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Re: Why did TBM lag behind other bond funds this year?

Post by Phineas J. Whoopee » Sat Jan 02, 2016 3:40 pm

Valuethinker wrote:...
I think these are what are called "foreign" bonds ie foreign issuers, but issuing in USD in the US market.

The alternative is they are "dollar Eurobonds". Paying out in dollars, but issued in international markets -- by US companies or by international ones.
...
In particular, they're Yankee Bonds, that is, US Dollar denominated bonds, issued inside the US by foreign-domiciled entities, under (particularly stringent) US laws, and which trade in the US fixed income market.

It isn't clear to me why anybody would be surprised that a fund billed as total market includes securities issued and traded in that market. I understand the potentially misleading nature, in this case, of the word total, but not of market.

There are Eurobonds, and their subset Eurodollar Bonds, which are not limited to Europe the continent or Euros the currency, but neither is issued in the US market, and neither is included in the Barclays US Aggregate Bond Index, which Vanguard's Total Bond Market Index Fund (VBMFX) tracks.

PJW

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arcticpineapplecorp.
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Re: Why did TBM lag behind other bond funds this year?

Post by arcticpineapplecorp. » Sat Jan 02, 2016 5:25 pm

Thanks everyone. I see in the Statement of Additional Information (separate from the prospectus), Vanguard talks about foreign securities. I perused it, but will read it in more depth soon. Thanks.
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Re: Why did TBM lag behind other bond funds this year?

Post by Munir » Sat Jan 02, 2016 5:45 pm

gambino wrote:Hi, first time poster. Thanks for your patience with me.

I have been looking over the 1 year performance for the Vanguard bond funds and noticed that Total Bond Market lagged behind all of the other intermediate and short term funds (besides TIPS). Can anyone explain why?

It seems like the return for TBM would be close to a composition of the returns for Intermediate Treasury, GNMA, and Intermediate Investment Grade but each of those outperformed it by more than 1% over the year. Even Short Term Index outperformed it by half a percent.

Is it because a lot of people are selling their shares of TBM? Would that even affect the NAV or is the return mostly determined by the performance of the actual bonds in the fund?

Thanks for your help.
TBM usually is the laggard but that does not detract from its attractiveness to those who believe in it.

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abuss368
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Re: Why did TBM lag behind other bond funds this year?

Post by abuss368 » Sat Jan 02, 2016 7:44 pm

Hi gambino,

Vanguard recommends a two fund approach with bonds that consist of both Total Bond Index and Total International Bond Index. Both funds provide a very low cost investment that contain thousands of individual bonds (i.e. diversification), and monthly cash flow from dividends.

There is a reason that Total Bond Index is now the largest bond fund in the world.

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Phineas J. Whoopee
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Re: Why did TBM lag behind other bond funds this year?

Post by Phineas J. Whoopee » Sat Jan 02, 2016 10:10 pm

abuss368 wrote:... and monthly cash flow from dividends.
...
Which, of course, as every rational investor knows, is irrelevant.
PJW

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