What do you think about GNMA Funds?

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hirlaw
Posts: 322
Joined: Tue Sep 29, 2009 10:20 am

What do you think about GNMA Funds?

Post by hirlaw » Sun Mar 10, 2019 4:26 pm

I noticed that the Vanguard GNMA Fund (VFIJX) has a 4-year duration, with a current yield of 3.34%.

I was thinking about using this fund as a portion of my after-tax bond portfolio, substituting it for a portion of my short term treasury bond fund (both are AAA rated). Was wondering if anyone had any thoughts about that.

Thanks!

Uniballer
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Re: What do you think about GNMA Funds?

Post by Uniballer » Sun Mar 10, 2019 4:29 pm

Ginnie-Maes will most likely incur state income tax. I thought they were not backed by the "full faith and credit of the United States", but apparently they are.
Last edited by Uniballer on Sun Mar 10, 2019 4:35 pm, edited 1 time in total.

AkwardDoct@rd
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Re: What do you think about GNMA Funds?

Post by AkwardDoct@rd » Sun Mar 10, 2019 4:31 pm

hirlaw wrote:
Sun Mar 10, 2019 4:26 pm
I noticed that the Vanguard GNMA Fund (VFIJX) has a 4-year duration, with a current yield of 3.34%.

I was thinking about using this fund as a portion of my after-tax bond portfolio, substituting it for a portion of my short term treasury bond fund (both are AAA rated). Was wondering if anyone had any thoughts about that.

Thanks!
I recently saw the same thing and asked a similar question 2 days ago. I don't know if this helps or not. I got 1 answer but seemed well reasoned

viewtopic.php?f=1&t=275186&newpost=4426 ... ead#unread

Topic Author
hirlaw
Posts: 322
Joined: Tue Sep 29, 2009 10:20 am

Re: What do you think about GNMA Funds?

Post by hirlaw » Sun Mar 10, 2019 4:34 pm

I live in a state with no income tax and I believe that they are, in fact, backed by the full & credit of the USA. Maybe you are thinking of Fannie Mae or Freddie Mac?

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munemaker
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Re: What do you think about GNMA Funds?

Post by munemaker » Mon Mar 11, 2019 1:11 pm

hirlaw wrote:
Sun Mar 10, 2019 4:26 pm
I noticed that the Vanguard GNMA Fund (VFIJX) has a 4-year duration, with a current yield of 3.34%.

I was thinking about using this fund as a portion of my after-tax bond portfolio, substituting it for a portion of my short term treasury bond fund (both are AAA rated). Was wondering if anyone had any thoughts about that.

Thanks!
I like the GNMA. Unlike her relatives Fannie and Freddie, Ginny is backed by the full faith and credit of the US government. Over time, it performs very closely to VBTLX, the Vanguard Total Bond Market Fund. Of course, VBTLX includes a lot of non-guaranteed holdings such as corporate bonds, so the GNMA would seem to have less risk and generate approximately the same return. Vanguard GNMA carries a Morningstar rating of 5 stars (*****).

Dandy
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Re: What do you think about GNMA Funds?

Post by Dandy » Mon Mar 11, 2019 2:40 pm

GNMA is based on mortgages. When interest rates go up people holding lower interest rate mortgages tend to hold on to them rather than refinance. When interest rates drop they refinance.. Non mortgage fixed income funds act differently.

I'm not sure if GNMA's have anything special that would make that not true.

So, if they don't then you want to buy them when interest rates are relatively high and if anything declining. today's mortgage interest rates seem relatively low but whether we are still in a rising rate environment is questionable -- at least the Fed seems to be less likely to raise rates then they were last year.

The do have a nice yield and as others have said the have a government guarantee. I'd look for other posts to see if GNMAs act like I have outlined.

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SpringMan
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Re: What do you think about GNMA Funds?

Post by SpringMan » Mon Mar 11, 2019 5:38 pm

I use Total Bond Market Index, VBTLX, which is more diversified and has some GNMA bonds in it. Performance has been very close between the two. In my opinion Morningstar is stingy with regards to VBTLX only giving it two stars. I would think an index fund would be at least 3 stars.
Best Wishes, SpringMan

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tennisplyr
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Re: What do you think about GNMA Funds?

Post by tennisplyr » Mon Mar 11, 2019 6:17 pm

I've held Fidelity and Vanguard GNMAs for years and have no complaints.
Those who move forward with a happy spirit will find that things always work out.

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grabiner
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Re: What do you think about GNMA Funds?

Post by grabiner » Tue Mar 12, 2019 9:45 pm

SpringMan wrote:
Mon Mar 11, 2019 5:38 pm
I use Total Bond Market Index, VBTLX, which is more diversified and has some GNMA bonds in it. Performance has been very close between the two. In my opinion Morningstar is stingy with regards to VBTLX only giving it two stars. I would think an index fund would be at least 3 stars.
Morningstar's ratings are not an opinion; they are a comparison of returns and risk over time for funds in a category. Total Bond Market has more Treasuries than most funds in the general intermediate-term category. Treasuries do better when the rest of the market is in trouble, which hasn't happened over the last 10 years. In particular, they did very well from September 2008-February 2009 as the stock market crashed, and then badly in March-August 2009 as the market recovered. The current 10-year performance numbers include the recovery but not the crash.
Wiki David Grabiner

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