Vanguard Core Bond Fund (VCORX) One Year on:

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SeeMoe
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Vanguard Core Bond Fund (VCORX) One Year on:

Post by SeeMoe »

Looking at posts about this fund here one year ago, I wonder how Bogleheads feel about this Managed bond fund today? Articles on this fund appear to think it 's a winner. Even Morningstar has taken the unusual step of listing it says Newsweek, although it is relatively new vs established funds.
I'm thinking, as a retiree, about exchanging my Admiral shares($55k) of the total international bond index fund in my T-IRA account to this Core Bond fund in Admiral shares. (Have a lot of total bond index, short/ intermediate term bonds, some high yield in a 40/60 folio, FYI.)
Why? Because, according to many posts here regards the Total International Bond Index, I think international bonds are riskier and more expensive for the value received what with hedging and conversion to USD costs. Not to mention foreign intrigue! (I/we do have substantial total international stock index fund holdings though in our taxable account at Vanguard.) what do you all think, please,..?

SeeMoe.. :?:
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by willthrill81 »

The argument against active management seems less convincing to me when applied to bonds. But that being said, considering that this is an actively managed fund, I'd like to see a longer track record compared to benchmarks before I would invest in it.

It's only 60% bonds, but why not just go with Wellesley Income instead? Its 47 year track record is second to none, and they too use an active approach for both bonds and equities. Some might put down their active strategy, but the proof is in the pudding.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by SeeMoe »

willthrill81 wrote:The argument against active management seems less convincing to me when applied to bonds. But that being said, considering that this is an actively managed fund, I'd like to see a longer track record compared to benchmarks before I would invest in it.

It's only 60% bonds, but why not just go with Wellesley Income instead? Its 47 year track record is second to none, and they too use an active approach for both bonds and equities. Some might put down their active strategy, but the proof is in the pudding.
Wellesley is a very good fund for retirees ,or otherwise, with low costs and a long track record. Long ago a CFP advised us to never use balanced funds for this reason: If one needs money suddenly it is better to have separate stock and bond funds so that the ones that are currently doing well are the ones to tap. All of our taxable stock/bond funds are indexed, and our T-IRA accounts are 100% bond funds.

SeeMoe.. :dollar
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by willthrill81 »

SeeMoe wrote:
willthrill81 wrote:The argument against active management seems less convincing to me when applied to bonds. But that being said, considering that this is an actively managed fund, I'd like to see a longer track record compared to benchmarks before I would invest in it.

It's only 60% bonds, but why not just go with Wellesley Income instead? Its 47 year track record is second to none, and they too use an active approach for both bonds and equities. Some might put down their active strategy, but the proof is in the pudding.
Wellesley is a very good fund for retirees ,or otherwise, with low costs and a long track record. Long ago a CFP advised us to never use balanced funds for this reason: If one needs money suddenly it is better to have separate stock and bond funds so that the ones that are currently doing well are the ones to tap. All of our taxable stock/bond funds are indexed, and our T-IRA accounts are 100% bond funds.

SeeMoe.. :dollar
But since total returns are what matter, why try to do your own 'active management' when it comes to withdrawals when a fund like Wellesley is already actively managed for a very good risk/return profile already?
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by dm200 »

willthrill81 wrote:The argument against active management seems less convincing to me when applied to bonds. But that being said, considering that this is an actively managed fund, I'd like to see a longer track record compared to benchmarks before I would invest in it.
It's only 60% bonds, but why not just go with Wellesley Income instead? Its 47 year track record is second to none, and they too use an active approach for both bonds and equities. Some might put down their active strategy, but the proof is in the pudding.
With Equity Index Funds, there is so little turnover of the portfolio that this reduces the costs of operating the fund. With Bond Index funds, there is considerable turnover (buying AND selling) of the portfolio to keep the target duration/maturity. This relatively high turnover makes Bond Index fund have less of an advantage over managed bond funds.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Svensk Anga »

I saw the article on the VG site this morning. They claim to be shooting for 0.45% per year more return than the index, net of the fee difference. I also recalled the recent M* article saying that active bond funds fare better compared to their index than do active stock funds. So I looked at the 1 year graph on the performance tab on VG's pages for this fund. It overlays the total bond index very closely. No 0.45%/year yet.

I agree it might well be better than the total international bond fund. Maybe it will turn out to be superior to TBM, but I will have to see more before I jump in.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by ruralavalon »

SeeMoe wrote:Looking at posts about this fund here one year ago, I wonder how Bogleheads feel about this Managed bond fund today? Articles on this fund appear to think it 's a winner. Even Morningstar has taken the unusual step of listing it says Newsweek, although it is relatively new vs established funds.
I'm thinking, as a retiree, about exchanging my Admiral shares($55k) of the total international bond index fund in my T-IRA account to this Core Bond fund in Admiral shares. (Have a lot of total bond index, short/ intermediate term bonds, some high yield in a 40/60 folio, FYI.)
Why? Because, according to many posts here regards the Total International Bond Index, I think international bonds are riskier and more expensive for the value received what with hedging and conversion to USD costs. Not to mention foreign intrigue! (I/we do have substantial total international stock index fund holdings though in our taxable account at Vanguard.) what do you all think, please,..?

SeeMoe.. :?:
Vanguard Core Bond Fund Investor Shares (VCORX) has a short history, has had performance about equal to the Barclays Aggregate U.S. Bond Index, is intermediate-term with an average credit quality of A, is a good actively managed bond fund, and the Admiral Shares (VCOBX) have a low expense ratio of 0.15%.

I would use instead Vanguard Total Bond Market Index Index, or some other Vanguard intermediate-term bond fund with a longer record.

I agree with switching out of the international bond fund.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by lack_ey »

Svensk Anga wrote:I saw the article on the VG site this morning. They claim to be shooting for 0.45% per year more return than the index, net of the fee difference. I also recalled the recent M* article saying that active bond funds fare better compared to their index than do active stock funds. So I looked at the 1 year graph on the performance tab on VG's pages for this fund. It overlays the total bond index very closely. No 0.45%/year yet.
Inception 2016-03-28 to yesterday, admiral shares returned 1.49%. For total bond admiral shares, 0.99%.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

I don't know well they'd do but if I had $50k+ at Vanguard and had to choose between the two, I think I'd pay for the 0.15% on the active fund. I think ~10 bp may be beatable on a risk-adjusted basis given the constraints.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by joe8d »

Stocks:Indexed. Bonds: VG active.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Svensk Anga »

lack_ey wrote:
Svensk Anga wrote:I saw the article on the VG site this morning. They claim to be shooting for 0.45% per year more return than the index, net of the fee difference. I also recalled the recent M* article saying that active bond funds fare better compared to their index than do active stock funds. So I looked at the 1 year graph on the performance tab on VG's pages for this fund. It overlays the total bond index very closely. No 0.45%/year yet.
Inception 2016-03-28 to yesterday, admiral shares returned 1.49%. For total bond admiral shares, 0.99%.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

I don't know well they'd do but if I had $50k+ at Vanguard and had to choose between the two, I think I'd pay for the 0.15% on the active fund. I think ~10 bp may be beatable on a risk-adjusted basis given the constraints.
Curious. The graph on the VG site for the past year performance showed no gap between VCORX and the total bond index at the end. I just graphed it at M*. If one uses the maximum time span, the graph starts at 3/10/16 and VCORX is lagging slightly. But if one looks at the past year it is outperforming. It looks like it took 2 weeks from 3/10/16 to get the funds invested - the growth curve was initially flat while other bond funds were climbing. I guess one cannot trust the graphs on the VG site to make this fine a distinction. So score a point for those critical of VG's site design.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by SeeMoe »

Thanks to Ruraavalon, LAck-key, and Taylor and his references to master Bogle, R. Ferri, Etc. Who all avoid international bonds, it appears. I decided to dump my international bond index Admiral fund for the core bond Admiral fund. Not hard to do although Vanguard makes me feel a bit guilty doing so. At least for me...

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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Doc »

The high allocation to securitized obligations make it look more like Pimco Total Return PTTRX than a TBM fund. PTTRX has a longer history even post Gross.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by jhfenton »

Svensk Anga wrote:Curious. The graph on the VG site for the past year performance showed no gap between VCORX and the total bond index at the end. I just graphed it at M*. If one uses the maximum time span, the graph starts at 3/10/16 and VCORX is lagging slightly. But if one looks at the past year it is outperforming. It looks like it took 2 weeks from 3/10/16 to get the funds invested - the growth curve was initially flat while other bond funds were climbing. I guess one cannot trust the graphs on the VG site to make this fine a distinction. So score a point for those critical of VG's site design.
VCORX/VCOBX had an explicit subscription period prior to March 28, 2016 during which all investments were held in cash. In meaningful terms, fund inception was really March 28, 2016. That's why the performance shows as flat prior to that date.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by robertalpert »

Core bond's largest holding ($490 million) is "Japan Treasury Discount Bill". That's 74 percent of Core Bond's total assets. What does this mean about the character of Core Bond's portfolio?
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Higher Bond Yield = Higher Risk

Post by Taylor Larimore »

Bogleheads:

Bonds are primarily for safety. Use stocks for higher returns.

In my opinion, it is a mistake to rank bond funds on the bases of their return. Why? Because higher yield in bonds nearly always reflects higher risk.

In the 2008 bear market Vanguard Total Bond Market gained +5%; Hi-Yield Corporate Bond Fund plunged -21%.

Best wishes.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Soon2BXProgrammer »

robertalpert wrote:Core bond's largest holding ($490 million) is "Japan Treasury Discount Bill". That's 74 percent of Core Bond's total assets. What does this mean about the character of Core Bond's portfolio?
huh?

http://portfolios.morningstar.com/fund/ ... ture=en-US
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by lazyday »

I don't see it either, neither annual report or https://personal.vanguard.com/us/FundsA ... Order=desc
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Re: Higher Bond Yield = Higher Risk

Post by willthrill81 »

Taylor Larimore wrote:Bogleheads:

Bonds are primarily for safety. Use stocks for higher returns.

In my opinion, it is a mistake to rank bond funds on the bases of their return. Why? Because higher yield in bonds nearly always reflects higher risk.

In the 2008 bear market Vanguard Total Bond Market gained +5%; Hi-Yield Corporate Bond Fund plunged -21%.

Best wishes.
Taylor
I suppose this is probably a topic for another thread, but is there value to be gained in high-yield corporate bonds apart from what can be achieved with just purchasing TSM and TBM? It seems that if you wanted the higher returns of junk bonds, you would just buy more TSM and less TBM. Since 1993 at Vanguard, you would have had virtually identical returns with 30% TSM / 70% TBM as you would with their junk bond fund, but the TSM/TBM combo had significantly lower volatility. In particular, the max drawdown of the junk bonds was -28.9% during that time, while the TSM/TBM combo was -13.3%.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by robertalpert »

Soon2BXProgrammer wrote:
robertalpert wrote:Core bond's largest holding ($490 million) is "Japan Treasury Discount Bill". That's 74 percent of Core Bond's total assets. What does this mean about the character of Core Bond's portfolio?
huh?

http://portfolios.morningstar.com/fund/ ... ture=en-US

I see my error, I was looking at "face value" instead of "market value".
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Northern Flicker »

Vanguard also rates vcorx has having higher risk than the total bond market index fund, so how much of the excess return is due to active mgmt skill vs just taking more risk is unclear.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Munir »

jalbert wrote:Vanguard also rates vcorx has having higher risk than the total bond market index fund, so how much of the excess return is due to active mgmt skill vs just taking more risk is unclear.
In the "compare" chart by Vanguard for VCOBX and VBTLX, both funds have the same risk ranking at "2".

I don't necessarily agree that higher return for a bond fund automatiocally means higher risk. Supposedly, the bond choices by managers can provide the edge for one fund over another even when they are in the same category.

I also disagree with those who dismiss higher bond fund returns by saying if you want such higher returns, then add more equities to your portfolio. The risks between equities and bonds are are far greater than having a slightly higher corporate bond presence in the better performing bond fund. Sticking with a lower-performing bond fund with poorer return than comparable funds in the same category and justfying holding it because it's "safer" does not make sense. You might as well stick with cash under the mattress!

I think that the Core Bond Fund is a solid fund even though I prefer the better-performing Intermediate Investment Grade (VFIDX) with its higher corporate holdings but mostly for its shorter duration- which is important but but not considered enough in the discussion of bond funds. You can compare all these above-mentioned bond funds on the M* chart graph that nisiprius often uses.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by SeeMoe »

robertalpert wrote:Core bond's largest holding ($490 million) is "Japan Treasury Discount Bill". That's 74 percent of Core Bond's total assets. What does this mean about the character of Core Bond's portfolio?
Oh, oh! Didn't know that. Somebody at Vanguard's Bond Dept. Evidently likes Japanese bonds as I saw a couple of other funds in their bond Stable that appear to be a bit heavy on Japan also,....

SeMoe.. :shock:
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by siamond »

SeeMoe wrote:
robertalpert wrote:Core bond's largest holding ($490 million) is "Japan Treasury Discount Bill". That's 74 percent of Core Bond's total assets. What does this mean about the character of Core Bond's portfolio?
Oh, oh! Didn't know that. Somebody at Vanguard's Bond Dept. Evidently likes Japanese bonds as I saw a couple of other funds in their bond Stable that appear to be a bit heavy on Japan also,....

SeMoe.. :shock:
No worry Seemoe, this post was mistaken. Check yourself here, the amount of foreign 'stuff' is 4.3% in the VCORX fund. And the overview of the fund makes very clear that this is US-centric.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by siamond »

Munir wrote:I also disagree with those who dismiss higher bond fund returns by saying if you want such higher returns, then add more equities to your portfolio. The risks between equities and bonds are are far greater than having a slightly higher corporate bond presence in the better performing bond fund. Sticking with a lower-performing bond fund with poorer return than comparable funds in the same category and justfying holding it because it's "safer" does not make sense. You might as well stick with cash under the mattress!
Totally agreed. Who cares about ups and downs of a few % in value? This is NOT risk. This is being silly.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Doc »

Munir wrote:In the "compare" chart by Vanguard for VCOBX and VBTLX, both funds have the same risk ranking at "2".

I don't necessarily agree that higher return for a bond fund automatiocally means higher risk. Supposedly, the bond choices by managers can provide the edge for one fund over another even when they are in the same category.
Morningstar is showing VBTLX with a credit rating of AA and VCORX with only A. So the core fund has more credit risk. The durations are nearly identical so no difference in term risk.

Other factors: VCORX/VBLTX

U.S. Treasury 18.58/38.75
Corporate Bond 29.91/28.95
Securitized 40.43/24.65

Sub categories of Securitized:

Agency MBS Pass-Through 20.56/18.11
Commercial MBS 9.41/4.62
Asset-Backed 6.99/0.61

(Date for VCORX 12/31/16, VBTLX 2/8/17 Probably not significant unless VCORX is really, really churning.)
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Munir »

Doc wrote:
Munir wrote:In the "compare" chart by Vanguard for VCOBX and VBTLX, both funds have the same risk ranking at "2".

I don't necessarily agree that higher return for a bond fund automatiocally means higher risk. Supposedly, the bond choices by managers can provide the edge for one fund over another even when they are in the same category.
Morningstar is showing VBTLX with a credit rating of AA and VCORX with only A. So the core fund has more credit risk. The durations are nearly identical so no difference in term risk.

Other factors: VCORX/VBLTX

U.S. Treasury 18.58/38.75
Corporate Bond 29.91/28.95
Securitized 40.43/24.65

Sub categories of Securitized:

Agency MBS Pass-Through 20.56/18.11
Commercial MBS 9.41/4.62
Asset-Backed 6.99/0.61

(Date for VCORX 12/31/16, VBTLX 2/8/17 Probably not significant unless VCORX is really, really churning.)
Doc: On the Vanguard page of fund info, they have a line saying US Government for holdings showing the VCOBX with 52% and VBTLX with 62%. I assume these numbers include US Government instruments other than Treasuries such as the Agency MBS Pass-Throughs. Is that correct? Are they as secure as Treasuries? Which numbers are more accurate for credit risk?
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Doc »

Munir wrote:Doc: On the Vanguard page of fund info, they have a line saying US Government for holdings showing the VCOBX with 52% and VBTLX with 62%. I assume these numbers include US Government instruments other than Treasuries such as the Agency MBS Pass-Throughs. Is that correct? Are they as secure as Treasuries? Which numbers are more accurate for credit risk
I can't give you a definitive answer because I don't understand the question very well and I have no idea wht Vanguard does with their data presentation.

That said let me try to set some light on the issues.

US Government Instruments: Does it inclued Government agencies? Yes maybe. Does it mean actual "agencies" of the Government like the GNMA which is owned by the Gov or Government Sponsored Agencies like Freddie and Fannie which are private but under receivership of the Federal Government. Then does it include pass throughs of these "agencies". Or should these mortgage passthroughs be counted as "securitized" and then be put into a separate category called "Securitized".

Secure as Treasuries: If by secure you mean default risk the answer is probably. If you are addressing the free put given to the mortgagee to prepay or extend the terms of the note the answer is no.

Credit risk: I you look at the "Distribution by credit quality" chart on Vanguard's Portfolio and Management tab of each fund you will see where the differences are. If you use M*'s data you can quickly tell what the "weighted average" is for the two funds.

Corect: I don't know what you mean by "which numbers are more correct". Vanguard assigns an overall risk number which includes both term and credit risk. I don't find that very useful for the type of comparisons being addressed in this thread. M* uses data supplied by Vanguard. M* may present that data in different ways from what the fund companies choose. I like M* because it puts all the fund companies on the same scale. M*'s numbers should be "correct" but sometimes are a little dated. There have been times when there is a data transfer glitch. Vanguard and M* were way out of synch 2nd Q of last year IIRC. M* responded to the "heads up" and Vanguard didn't response. The problem was resolved. I don't know which was the source of the error. (Correct?)
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Munir »

Doc: below are the numbers I was referring to. Thank you for your clarifications.
----------------------------------------------------------------------------------


From the Vanguard web site:

Portfolio composition
Distribution by credit quality†† (% of fund)
as of 02/28/2017
Core Bond Fund Admiral
U.S. Government 51.8%



Portfolio composition
Distribution by credit quality† (% of fund)
as of 02/28/2017
Total Bond Mkt Index Adm
U.S. Government 62.1%


†† Credit-quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). "NR" is used to classify securities for which a rating is not available. NR securities may include a Fund's investment in Vanguard Market Liquidity Fund or Vanguard Municipal Cash Management Fund, each of which invests in high-quality money market instruments and may serve as a cash management vehicle for the Vanguard funds, trusts, and accounts. U.S. Treasury, U.S. Agency, and U.S. Agency mortgage-backed securities appear under "U.S. Government."
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Doc »

Munir: FWIW Morningstar calculates its average credit rating for a fund by weighting the $'s by the probability of default. So a "little bit" of "C" derates the funds credit rating by more than a "little bit". This helps highlight a fund that gooses up its return by adding just a small amount of lower credit rating. Like maybe VCORX?
Morningstar wrote:To correct this bias, Morningstar takes the convexity of default rate curves into account when calculating the average credit rating of a portfolio. The first step is to map the grades of a portfolio's constituents into relative default rates using a convex curve. Next, average the resulting default rates (rather than the grades) to come up with an average default rate for the portfolio.
http://www.morningstar.com/InvGlossary/ ... e_box.aspx
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Hanksmoney »

I have been doing some research into bond funds lately because I was trying to decide on my company's offerings of Pimco Total Return PTTRX (0.46%) vs VBTLX (0.06%). It's hard to argue with PTTRX's long history of being actively managed and producing more than making up the cost difference. However, it seems as though it has begun to fade - making it more of an equal. Then I look at a multi-sector bond fund like PIMIX and see how it has tracked with the more conservative bond funds but has out performed like crazy. Some people here say to treat it like Equity, but it tracks closer to bonds so I don't see it as an equity subsitution. I am thinking that instead of using 80/20, to use 70/20/10 with 10% being a higher yielding bond fund. That seems more conservative than an 80/20 split.

Have others done similar and are there some good alternatives to PIMIX out there?
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by BlueEars »

I have a lot of VFIDX (Intermediate Investment Grade) which has an M* credit rating of A. It took quite a tumble in the fall of 2008. The AA rated VBTLX (total bond mkt) did much better in that equity decline period.

VCORX has fewer corporates (29% versus 67% for VFIDX). Would one expect a better performance out of the A rated VCORX versus VFIDX in such an equity decline? Opinions?
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Doc »

Hanksmoney wrote:I have been doing some research into bond funds lately because I was trying to decide on my company's offerings of Pimco Total Return PTTRX (0.46%) vs VBTLX (0.06%). It's hard to argue with PTTRX's long history of being actively managed and producing more than making up the cost difference.
If you are going to compare two funds based on total returns I suggest that you use a "rolling return" format so that the start and end points don't mislead you.

Here's a three year rolling return chart for PTRX and VBTLX:

Imageimage upload no size limit
http://quotes.morningstar.com/chart/fun ... 22%3A36%7D

As you note PTTRX has not done as well recently. Is that because Bill Gross left or because a lot of investors bailed out because Bill Gross left? Most of the staff and senior managers have remained with Pimco. We can't predict the future.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Munir »

BlueEars wrote:I have a lot of VFIDX (Intermediate Investment Grade) which has an M* credit rating of A. It took quite a tumble in the fall of 2008. The AA rated VBTLX (total bond mkt) did much better in that equity decline period.

VCORX has fewer corporates (29% versus 67% for VFIDX). Would one expect a better performance out of the A rated VCORX versus VFIDX in such an equity decline? Opinions?
I have been tracking both funds closely since VCOBX was started one year ago. While one year is a short period to compare performance, rates have gone up but equities have not fallen. A $10,000 grew to $10,196 for VFIDX and to $10,076 for VCOBX, A rolling graph on M* (that Nisi and Doc can draw and which I don't know how to reproduce) shows a more dramatic difference for these two funds. It is no guarantee of how they will perform in the future. BTW, VFIDX recovered very well in 2008 over a few months, so it was a transient dip. For me, it's the long term results that count.



$10,076 vs. $10,196
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Doc
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Doc »

Munir wrote:A rolling graph on M* (that Nisi and Doc can draw and which I don't know how to reproduce) shows a more dramatic difference for these two funds.
Morningstar.com -> Home
Type (VBTLX) in quote search box <enter>
<chart>
"Growth" pull down menu -> "rolling returns"
"Rolling period" pulldown menu > choose longe to compare return and shorter to look at covariance.

Put in what you want to compare in "compare to symbol" box <enter>

"x" out extraneous comparisons

(You will receive a bill in the mail in the near future. :sharebeer )
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Northern Flicker »

I don't necessarily agree that higher return for a bond fund automatiocally means higher risk. Supposedly, the bond choices by managers can provide the edge for one fund over another even when they are in the same category.
Nonetheless, when active managers generate excess return, it is a very fundamental question to ask when evaluating the contribution of their active mgmt if the excess return was just because they took more risk
Risk is not a guarantor of return.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Doc »

jalbert wrote:
I don't necessarily agree that higher return for a bond fund automatiocally means higher risk. Supposedly, the bond choices by managers can provide the edge for one fund over another even when they are in the same category.
Nonetheless, when active managers generate excess return, it is a very fundamental question to ask when evaluating the contribution of their active mgmt if the excess return was just because they took more risk
Maybe they just reduced their cost say by not buying thinly traded issues with wide spread or using derivatives like interest rate swaps to attain a given risk attribute without actually buying and then selling the position.

Vanguard's TBM Index fund used the first idea by going to the float adjusted version of the index. They also may have saved some e/r by passing the cost of choosing "float adjustment" on to the index publisher.

I had another thought the other night. Maybe VCORX is just duplicating Pimco's Total return fund with a 1-3 month delay thus saving all the research costs that Pimco has to absorb. :twisted:
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Theoretical »

I wouldn't touch that much non-agency ABS with a 50 foot pole. I really don't trust the ratings agencies one bit.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by lack_ey »

Theoretical wrote:I wouldn't touch that much non-agency ABS with a 50 foot pole. I really don't trust the ratings agencies one bit.
All non-agency ABS or which are you thinking about? What's the problem with the ratings agencies here as opposed to elsewhere (I can think of some things, but I don't have data on it)? What about the judgment of the portfolio managers?

Looking through the holdings, I'm seeing stuff like JP Morgan commercial MBS, Morgan Stanley commercial MBS, Ally auto dealer floorplan loans, Evergreen credit card loans, etc.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Theoretical »

Looking through the holdings, I'm seeing stuff like JP Morgan commercial MBS, Morgan Stanley commercial MBS, Ally auto dealer floorplan loans, Evergreen credit card loans, etc.

Commercial MBS - in one sense, the best of a bad bunch, but there's so little transparency and accountability on property values that I think they'll always be over-regarded as safe simply because they're "secured," but only to a discrete set of chocolates so to speak, rather than the firm's assets in the case of regular corporate debt.

Car dealer loans (I assume they're not consumer loans but business to dealer for inventory) - not my cup of tea, but they're probably tolerable as bank loans go.

Unsecured credit card debt - this one is more on principle of their usurious practices and the vulnerability to take on equity time risks in a meltdown (lots of bankruptcies plus increasing borrowing from those less able to pay)

In addition, for portfolio efficiency purposes, I don't like their negative convexity.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by lack_ey »

That all sounds very reasonable and I would largely concur, but what did that have to do with the credit rating agencies?
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Northern Flicker »

siamond wrote:
Munir wrote:I also disagree with those who dismiss higher bond fund returns by saying if you want such higher returns, then add more equities to your portfolio. The risks between equities and bonds are are far greater than having a slightly higher corporate bond presence in the better performing bond fund. Sticking with a lower-performing bond fund with poorer return than comparable funds in the same category and justfying holding it because it's "safer" does not make sense. You might as well stick with cash under the mattress!
Totally agreed. Who cares about ups and downs of a few % in value? This is NOT risk. This is being silly.
http://www.nber.org/papers/w15848
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Munir »

Has there been a study about actual defaults of corporate bonds in Vanguard Investment Grade Bond funds that were of significance to the valuation and success of that bond fund?
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Hanksmoney »

Doc wrote: If you are going to compare two funds based on total returns I suggest that you use a "rolling return" format so that the start and end points don't mislead you.

Here's a three year rolling return chart for PTRX and VBTLX:

Imageimage upload no size limit
http://quotes.morningstar.com/chart/fun ... 22%3A36%7D

As you note PTTRX has not done as well recently. Is that because Bill Gross left or because a lot of investors bailed out because Bill Gross left? Most of the staff and senior managers have remained with Pimco. We can't predict the future.
Thank you for that suggestion - always looking for ways to improve my usage of these tools especially considering I am fairly new to the subject. I would think looking at rolling returns is important for retirees who need to depend on interest income. At age 31, I am trying to determine a longer strategy and if managed, high yielding bonds have their place in my portfolio.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Theoretical »

lack_ey wrote:That all sounds very reasonable and I would largely concur, but what did that have to do with the credit rating agencies?
1. Because there's been hardly any real reform in their operations (along with continuing to have inherent conflicts of interest). 2. I believe fraud and overvaluation are much easier with these kinds of securities, especially in building out and maintaining the necessary tranches. It's a bit like a business owning a boatload of near identical subsidiaries all over the country, but with no independent reason for someone to investigate or sample regularly.

1 is also why I'm nervous about the muni world. I don't have a fundamental problem with corporate debt, as I believe investors are fairly compensated for this kind of investment grade debt, for the most part, in part because it's the assets of the enterprise itself that secures the bonds.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by siamond »

Munir wrote:Has there been a study about actual defaults of corporate bonds in Vanguard Investment Grade Bond funds that were of significance to the valuation and success of that bond fund?
The Vanguard fund with corporate bonds are still relatively new (e.g. VCIT inception date is Nov-09), but we can use the data series we have in the Simba spreadsheet, based on Barclays indices, to go back to 1970 for intermediate-term (IT) corps. Before that, the only history about corporate bonds (e.g. SBBI) is about long-term corporates, which aren't of much interest for regular investors.

Let's compare a portfolio with 100% IT Corporates with 100% IT Treasuries. Here is the nominal growth chart of $10k invested in 1970:

Image

Yes, ok, the corporates had that hiccup in 2008. They dropped by 7%, and quickly recovered (then kind of soared). There was a similar hiccup in 1974 (not visible on the growth chart), with a 6% drop and a recovery the year after. That's definitely not risk in my book, it's just a hiccup. Treasuries dropped by 4% max in this time period, not much of a difference. Actually, thinking about such trajectory, it seems (admittedly in hindsight) that a 50% Treasuries / 50% Corps mix would have been the best approach. Vanguard VBILX does exactly that. Cool, this is the fund I use for my bonds!

Now let's discuss truly meaningful risk, by showing the same growth chart in inflation-adjusted terms.

Image

The oil crisis and corresponding inflation was really painful, with a drawdown of some 35% in inflation-adjusted value for either portfolio (IT corps or treasuries), which lasted an entire decade. And here, frankly, one type of bonds or the other, this didn't change the outcome very much.

In my book, there are two major risks associated with bonds: inflation risk (short to mid term), and loss of purchasing power (long term). But credit risk, as long as you stay clear of high-yield bonds, is really not significant. Giving up on some purchasing power (due to lower returns) just to replace a 7% hiccup by a 4% hiccup, I fail to see the point.

PS. I did a quick comparison between LT corps and LT treasuries since 1926, with the SBBI numbers, and the outcome is basically the same.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Munir »

Siamond: thank you for the graphs. They confirm my views that many BHs have over-reacted to the 2008 transient hiccup that the Intermediate Investment Grade Bond Fund (VFIDX) experienced. Treasuries have had their dips but no similar reaction to them.

My reservation about VBILX is its longer duration and slightly greater volatility but I like its corporate:treasuries balance. A mix of VFIDX and VCOBX (or VBTLX) keeps the duration shorter but has a similar balance between treasuries and corporates.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by siamond »

Munir wrote:Siamond: thank you for the graphs. They confirm my views that many BHs have over-reacted to the 2008 transient hiccup that the Intermediate Investment Grade Bond Fund (VFIDX) experienced. Treasuries have had their dips but no similar reaction to them.

My reservation about VBILX is its longer duration and slightly greater volatility but I like its corporate:treasuries balance. A mix of VFIDX and VCOBX (or VBTLX) keeps the duration shorter but has a similar balance between treasuries and corporates.
Yes, agreed, people overreacted. It's very useful to put things in a longer historical perspective, then we get much more 'zen' about small ups and downs (or even bigger ones)... Yes, I hesitated to mix VFIDX with VBTLX, then decided to keep things simple.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by BlueEars »

siamond wrote:...
Yes, ok, the corporates had that hiccup in 2008. They dropped by 7%, and quickly recovered (then kind of soared). There was a similar hiccup in 1974 (not visible on the growth chart), with a 6% drop and a recovery the year after. That's definitely not risk in my book, it's just a hiccup. Treasuries dropped by 4% max in this time period, not much of a difference.
...
If the recession had become a depression, the hiccup could have been much worse. I think it depends on the extent and depth of a business decline. I don't have intermediate corporate bond data for the 1930's but I'd bet we'd draw different conclusions from that data.

Admittedly this is an extreme scenario that is unlikely to occur. But one should be prepared for the extremes, just in case.

FWIW, my bond holdings are primarily in intermediate grade bonds. But should certain conditions occur (for example, an inverting yield curve), I'd move to Treasuries in tax deferred retirement accounts. Definitely a minority view on this forum.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by Northern Flicker »

It's not that people overreacted to the magnitude of the drop in corporates. The problem was the fact that it occurred when equities were down 50% or more.

Risk should be evaluated as overall portfolio risk, not by looking at asset classes in isolation.
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Re: Vanguard Core Bond Fund (VCORX) One Year on:

Post by siamond »

BlueEars wrote:
siamond wrote:...
Yes, ok, the corporates had that hiccup in 2008. They dropped by 7%, and quickly recovered (then kind of soared). There was a similar hiccup in 1974 (not visible on the growth chart), with a 6% drop and a recovery the year after. That's definitely not risk in my book, it's just a hiccup. Treasuries dropped by 4% max in this time period, not much of a difference.
...
If the recession had become a depression, the hiccup could have been much worse. I think it depends on the extent and depth of a business decline. I don't have intermediate corporate bond data for the 1930's but I'd bet we'd draw different conclusions from that data.
Actually, Jalbert posted a link to an interesting NBER paper which is a little challenging to read, which includes this non-intuitive statement:
Surprisingly, the worst three year period during the Great Depression with default rates totaling to 12.88 percent barely makes it into the top five credit events for non financials.

Significantly worse credit events did occur, for example the railroad debacle, although I find hard to relate to this one:
During the three-year period from 1873−1875, the annual default rates total to 35.90 percent of the total par value of the corporate bond market.

-------------------------------
EDIT: let me add a more extensive statement from the article, which puts things in proper perspective. Personally, I find real hard to relate to the 19th century for proper analogies, but the authors think otherwise.

As described above, the worst three-year period is the 1873−75 period in which the default rates total to 35.90 percent. The 1892−1894 and 1883−1885 periods resulted in total default rates of 18.69 and 16.06 percent, respectively. The 1933−1935 period during the Great Depression ranks a distant fourth with a total default rate of 12.88 percent. Thus, while the Great Depression may have been the worst economic period during the sample period, it is actually very far from being the worst credit event experienced in the corporate bond market. The fifth and sixth worst three-year periods have total default rates that are very similar to that of the 1933−1935 period. Observe that the 2000−2002 period is the only post-World-War-II period in the top twelve three-year periods listed in Table 3. We note that the year-to-date corporate nonfinancial default rate for 2009 as of the end
of September is 2.46 percent (per Moody’s). Thus, however large the current financial crisis may appear, the 2009 default rate is unlikely to affect any of the rankings of the three-year period shown in Table 3.
Last edited by siamond on Tue Apr 04, 2017 6:10 pm, edited 2 times in total.
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