Why I'm Bailing from my Bond Fund

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john94549
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Why I'm Bailing from my Bond Fund

Post by john94549 »

But not, mind you from all Bond Funds. Our family trust had a concentrated position in FUSGX. Roughly 50% of the position in the Trust. For years and years, the fund afforded stellar returns. An anchor-to-windward, as it were. After the distribution of monthly dividends after April Fools Day, I'm cashing out. Convince me I'm wrong.
kenner
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Re: Why I'm Bailing from my Bond Fund

Post by kenner »

john94549 wrote:But not, mind you from all Bond Funds. Our family trust had a concentrated position in FUSGX. Roughly 50% of the position in the Trust. For years and years, the fund afforded stellar returns. An anchor-to-windward, as it were. After the distribution of monthly dividends after April Fools Day, I'm cashing out. Convince me I'm wrong.
What is FUSGX? Or should we just look this up for ourselves?
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Kevin M
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Re: Why I'm Bailing from my Bond Fund

Post by Kevin M »

You didn't say why.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Why I'm Bailing from my Bond Fund

Post by saltycaper »

FUSGX - Federated Fund for U.S. Government Securities Class A shares

There. Was that so hard? Took longer to ask what it is than it did to Google the ticker.

Okay. I still don't know exactly what it is either, but it probably holds Treasuries plus other government-backed securities. Let's see...

Oops. Not quite. Holds almost no Treasuries and is mainly agency and MBS.

OP: Why do you want to sell, and what would you replace it with?
Quod vitae sectabor iter?
kenner
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Re: Why I'm Bailing from my Bond Fund

Post by kenner »

saltycaper wrote:FUSGX - Federated Fund for U.S. Government Securities Class A shares

There. Was that so hard? Took longer to ask what it is than it did to Google the ticker.

Okay. I still don't know exactly what it is either, but it probably holds Treasuries plus other government-backed securities. Let's see...

Oops. Not quite. Holds almost no Treasuries and is mainly agency and MBS.

OP: Why do you want to sell, and what would you replace it with?
Thank you, SaltyCaper.

The fund looks like a loser. High front-end load, high annual expense ratio. Something a salesman would recommend, but a knowledgeable investor would reject, kinda like an Edsel.
Last edited by kenner on Tue Mar 29, 2016 1:42 am, edited 1 time in total.
Whakamole
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Re: Why I'm Bailing from my Bond Fund

Post by Whakamole »

john94549 wrote:But not, mind you from all Bond Funds. Our family trust had a concentrated position in FUSGX. Roughly 50% of the position in the Trust. For years and years, the fund afforded stellar returns. An anchor-to-windward, as it were. After the distribution of monthly dividends after April Fools Day, I'm cashing out. Convince me I'm wrong.
Wouldn't you save taxes by cashing out before the distribution of monthly dividends?
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warowits
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Re: Why I'm Bailing from my Bond Fund

Post by warowits »

4.5 load on a bond fund means it's a loser.
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Re: Why I'm Bailing from my Bond Fund

Post by asset_chaos »

The load is irrelevant. The fund was invested in, the load was paid, that money is gone, it's done. The only question is, is this particular fund something to keep going forward or not?

I don't consider 50% in a bond fund in a trust to be particularly concentrated. I have half of a trust fund I administer in bonds and half in stocks. I chose that allocation because I considered it a prudent balance between income generation to distribute to recipients now and growth to be able to distribute to recipients later. With the compressed tax brackets for trusts and tax on the first dollar of income, I would consider municipal bonds if accumulating capital in the trust and whatever is a good, safe, cheap, diversified taxable bond fund if distributing most/all of the current income to recipients in lower tax brackets.

As I know nothing about this particular Federated bond fund, nor anything about the trust and recipient circumstances, I have no idea if it's a good idea to sell and replace or to keep this fund. As a boglehead, generically I'd look to an almost certainly cheaper bond index fund, but the OP's and the trust's circumstances and preferences may reasonably differ.
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nisiprius
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Re: Why I'm Bailing from my Bond Fund

Post by nisiprius »

According to Morningstar, it's in the "intermediate government" category and it has "moderate" interest rate sensitivity, "medium" credit quality, duration of 4.2 years, and average credit rating of A. Morningstar says its fees have been "above average" and they give it two stars, meaning that over the time period they use for assigning stars, it did not do as well--after adjusting for risk--as other funds in the same category.

And it doesn't look to have ever done anything hugely different from Morningstar's benchmark (orange).

It's just an intermediate-term government bond fund. It's done what intermediate-term government bonds have done.

I think you should spend a little quality time poking around on Morningstar looking at this fund and comparing it to others in the same category.

Since inception--in 1969!--it has grown $10,000 to 177,641.57, actually beating the Intermediate Government benchmark at 169,317.30. I don't put much confidence in that, it's a tiny difference if you annualize it and, I often think Morningstar somehow manages to choose "kind" benchmarks--and they give it two stars, with means that they feel that the past performance, by comparison to others in the same category and taking risk into account--has been subpar. And the reason is likely the expense ratio of 0.94%, which is high for a bond fund.

But I don't see anything awful about it. I don't see how its performance has ever been "stellar" and I don't see any reason in particular to do anything in a big hurry now.

Given that its behavior has evidently been just the characteristic behavior of intermediate-term government bonds:

a) What was the reason for choosing intermediate-term government bonds in the first place?

b) Is there a reason to change to a different category now? Not so much dump the fund, rather change bond strategy?

c) If not, are there other funds in the same category that look marginally better (perhaps due to lower expenses)?

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Re: Why I'm Bailing from my Bond Fund

Post by nisiprius »

P.S. Just to state the obvious, in theory it shouldn't matter whether you cash out just before or just after the distribution of the dividend. Hanging on for the dividend shouldn't do any good or any harm.
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Re: Why I'm Bailing from my Bond Fund

Post by nisiprius »

P.P.S. I just realized that, although the title is "Why I'm Bailing from my Bond Fund," after re-reading john94549's initial post, I don't understand why john94549 is bailing from his bond fund. I don't actually see a reason.
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Re: Why I'm Bailing from my Bond Fund

Post by dbr »

1. Water under the bridge, but this fund should never have been purchased in the first place due to the load. That is especially true if the trust administration is also charging significant AUM. Do we assume the load was not waived?

2. At 0.94% ER one should replace this fund with a lower cost fund, but also what is the total cost to run the trust?

3. John, why did you cash out?
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Re: Why I'm Bailing from my Bond Fund

Post by pkcrafter »

Maybe John had nothing to do with the purchase of this fund, but the question is why hold on to a bond fund with an ER of 0.94 for so long. Of course, John said the returns were stellar, but now they are not. Is John selling for the right reason?

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Re: Why I'm Bailing from my Bond Fund

Post by midareff »

If the person that recommended a bond fund with 4.5% load and a .94% cost is still around I'd like to ask them why they recommended this fund. A quick look at M* using 12/31/1986 forward, a few months of 30 years, shows a $10K investment in FUSGX became $47,913 while a $10K investment in VBMFX became $58,348. In actuality the difference is greater since that $10K would be after paying about $450 in load.

The load is past history at this point but the last 30 years say $10K in the fund generated $37,913 while the same money in Total Bond generated $47,348. If my math is right that is a 24.9% difference in return, favor to the Total Bond Market, so I doubt the returns were ever as stellar as any salesmanship to keep them in the fund.

Seems to me the OP can plainly do considerably better by just using the plain vanilla Total Bond Market fund at VG, and now knows it.
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Re: Why I'm Bailing from my Bond Fund

Post by Kevin M »

nisiprius wrote:<snip> after re-reading john94549's initial post, I don't understand why john94549 is bailing from his bond fund. I don't actually see a reason.
You must have missed my reply:
Kevin M wrote:You didn't say why.
It was the second reply. Still waiting for a reply to that.

Kevin
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john94549
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Re: Why I'm Bailing from my Bond Fund

Post by john94549 »

Oops, I thought it clear from my posts on other threads, but I'm finally liquidating the Trust to pay off our mortgage.

As to why my parents bought the fund back in the late 60's, I asked my Mom the same question before she died. Her response was "a very nice friend worked for a local brokerage and recommended it." I'm sure the front-end load had nothing to do with his recommendation (chuckle).
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Re: Why I'm Bailing from my Bond Fund

Post by triceratop »

john94549 wrote:Oops, I thought it clear from my posts on other threads, but I'm finally liquidating the Trust to pay off our mortgage.

As to why my parents bought the fund back in the late 60's, I asked my Mom the same question before she died. Her response was "a very nice friend worked for a local brokerage and recommended it." I'm sure the front-end load had nothing to do with his recommendation (chuckle).
Posters generally don't read a member's previous posts when responding to a question (is there one?). As to your selling part of the portfolio, the decision to sell has nothing to do with the fund choice (the only information about the portfolio given) but you are asking why you should not? I think we are all missing something here, because it appears there is nothing any of us can help with.
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john94549
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Re: Why I'm Bailing from my Bond Fund

Post by john94549 »

Triceratop, I did appreciate the responses above. I have certain qualms about liquidating a large position, and the Boglehead community offered sound counsel. My conclusion (i.e., to liquidate the position and pay off the mortgage) goes hand-in-glove with many other posts in many other threads.

Although the bond fund has performed well (actually, better than well) over the past 46+ years, its concentration in MBS gave me pause. While our 3.4% mortgage (with 27+ years to run) is quite tasty, I'll be darned if I can find a guaranteed tax-equivalent yield these days. It is somewhat ironic that I will be selling a fund which actually invests in the mortgage we hold.

Again, thanks to all for the informative replies.

PS to Nisiprius: To confirm your graph, indeed my parents' initial $10,000 purchase in the late 60's (with dividends re-invested) has grown to a tad over $180,000. The power of compounding, and all that.
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john94549
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Re: pulling the trigger

Post by john94549 »

[Post merged into here, see below. --admin LadyGeek]

POW! Just pulled the trigger this morning on the last Trust asset. One less position to worry about.

As I reach the RMD stage of life, I find it ever easier to push the "sell" button.
Last edited by john94549 on Fri Apr 01, 2016 10:30 am, edited 2 times in total.
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Re: pulling the trigger

Post by john94549 »

[Post merged into here, see below. --admin LadyGeek]

I pulled the trigger this morning on the last asset in our family trust. It seems like this is the week to pull triggers. OMG, the boomers are selling! Head for the hills!

Seriously, I sold SWK, NWL, EALCX, and (this morning) FUSGX.

A selling frenzy, as it were. As one might say, "a willing buyer and a willing seller make a market". Boy howdy, was I a willing seller.
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john94549
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Bailed

Post by john94549 »

[Thread merged into here, see below. --admin LadyGeek]

Yes, friends and neighbors, I finally sold the last position in the family trust. Paying off the mortgage and keeping the balance to pay taxes.
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Re: Bailed

Post by Toons »

Congratulations.
You made the right choices for ,,,
Yourself.
:wink:
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Re: Bailed

Post by FullYellowJacket »

Context?
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john94549
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Re: Bailed

Post by john94549 »

At some point in time, I had to pull the trigger. I just finally "did it".
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Re: Why I'm Bailing from my Bond Fund

Post by LadyGeek »

I merged john94549's thread, along with 2 posts from pulling the trigger into here.

If there is new information, please update the original thread instead of starting a new one (or posting in an unrelated discussion).

Additionally, I removed one post and a reply which incorrectly stated assumptions about a moderator action. If there are any questions regarding a moderator action, please PM a moderator directly. See: Member Rights in a Dispute, 2nd paragraph.
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john94549
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Re: Why I'm Bailing from my Bond Fund

Post by john94549 »

Lady Geek, I have "new information" as it were. My sale actually cleared today. I am no longer an owner of said bond fund. I am so happy.

It's right up there with the joke about boat owners. As in, the best day is when you buy the boat. The next best day is when you sell it.

The best day to sell a bond fund is the day before it goes sideways. Just a joke.

I just checked into my on-line Trust accounts and found I am now the proud owner of "zero" shares. Computershare (SWK and NWL), Eaton Vance (EALCX), and Federated (FUSGX) are all now toast in the rear-view mirror. While I will never claim to have sold the Trust assets at the "top", I'm reasonably happy.

Happy, of course, comes with a price. In California, 9.3% on the margin. We all have to pay our taxes.

A bit of history. SWK and NWL were both "legacy" stocks in the Trust. EALCX was on of those funds which morphed from EVGFX, which no longer exists. FUSGX was (and is) a bond fund concentrated in MBS. Yes, I am a happy camper having divested. As I am the successor trustee and the sole heir, I can't complain.
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