hdas wrote: ↑
Tue Jun 11, 2019 1:13 pm
Does anybody have a sophisticated opinion? Thx
I don't know that my opinion is sophisticated, but I opted for VEGBX. I invested a little bit in the Investor shares on launch day (12/6/17) and then bumped it to a hair over $50K the following week and converted to VEGBX. (My $50,0xx has grown to $55,7xx with no additional money and reinvestment of dividends. I plan to keep it at 5%, and it has stubbornly stayed just above that threshold this year.)
In my opinion, there is nothing magical about market-cap-weighted indexing. The primary reason MCW indexing outperforms is cost. Also, in very liquid equity markets, it generally offers the lowest implementation costs. It is also a reasonable approach for treasury and similarly-liquid "risk-free" bond markets.
I am less enamored of MCW indexing in credit markets. Credit markets are less liquid (perhaps less efficient?). Transaction costs are higher. A higher market cap means more debt.
That doesn't mean that costs don't matter. An active treasury bond fund might justify 0-1 bp added expense. A high quality corp bond fund a few bp. A high yield fund a few more bp. Most active bond funds underperform (on a credit-risk-adjusted basis) because they don't earn their expenses back, not because they can't eek out a few bp of gross return.
In emerging market debt markets, I see all of those issues as magnified: less liquid, harder to research, etc. So I decided that I was more than happy to pay Vanguard 13 bp (now 15 bp) extra to look for value in emerging market debt. Particularly as long as the fund is relatively small, I thought it seemed likely that Vanguard would be able to earn more than the difference in cost by considering risk and relative value in choosing positions.