VFITX, VBIIX or VBMFX for Swensen portfolio?

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msterrr
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VFITX, VBIIX or VBMFX for Swensen portfolio?

Post by msterrr » Sat Oct 07, 2017 9:03 pm

Would VFITX, VBMFX or VBIIX be the best choice for the bond allocation of a Swensen portfolio?

VFITX is 100% treasuries. VBMFX is ~40% treasuries / 30% corporate / 20% MBS. VBIIX is ~50% treasuries / 40% corporate. VBIIX has the highest volatility, VFITX is lower, and VBMFX is lowest. VBMFX / VBIIX both have slightly longer avg effective duration / maturity (~7 yr vs ~5 yr for VFITX).

Personally I'm using a 50/50 VFITX / VIPSX allocation on the fixed income side, but am considering exchanging VFITX for VBMFX.

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telemark
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Re: VFITX, VBIIX or VBMFX for Swensen portfolio?

Post by telemark » Sat Oct 07, 2017 9:51 pm

Best is a slippery term, but at least in his book, Swensen argues in favor of pure treasuries. As I recall it, he thinks other kinds of bonds don't compensate you properly for the additional risk they expose you to. On the other hand, Bogle criticizes Total Bond for having too many treasuries in it, so obviously opinions vary.

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CyberBob
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Re: VFITX, VBIIX or VBMFX for Swensen portfolio?

Post by CyberBob » Sat Oct 07, 2017 10:19 pm

If you read his book Unconventional Success or Pioneering Portfolio Management, you'll see he definitely recommends pure treasury. Somebody emailed him a few years back and he responded that you should match the duration of the overall treasury market.

VFITX would get you pretty close (although it's not an index fund). The only better option might be a 'total treasury' index fund like iShares U.S. Treasury Bond ETF (GOVT).

dkturner
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Re: VFITX, VBIIX or VBMFX for Swensen portfolio?

Post by dkturner » Sun Oct 08, 2017 12:12 pm

It's also worth noting that the "Swensen Portfolio" recommends a relatively modest allocation (only 30%) to fixed income. As a general rule most academic oriented advisors recommend that the higher the equity allocation in a portfolio, the higher the QUALITY of the fixed income should be. This makes sense, because when equities take a major hit, treasuries usually hold up better than corporates or municipals. Swensen's 50/50 fixed income split between long-term treasuries and TIPS is used to equally balance between the inflation and deflation risks which can impact a portfolio. It's definitely designed to be a very long-term holding.

msterrr
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Re: VFITX, VBIIX or VBMFX for Swensen portfolio?

Post by msterrr » Mon Oct 09, 2017 5:56 am

dkturner wrote:
Sun Oct 08, 2017 12:12 pm
It's also worth noting that the "Swensen Portfolio" recommends a relatively modest allocation (only 30%) to fixed income. As a general rule most academic oriented advisers recommend that the higher the equity allocation in a portfolio, the higher the QUALITY of the fixed income should be. This makes sense, because when equities take a major hit, treasuries usually hold up better than corporates or municipals. Swensen's 50/50 fixed income split between long-term treasuries and TIPS is used to equally balance between the inflation and deflation risks which can impact a portfolio. It's definitely designed to be a very long-term holding.
Swensen recommends ITBs if I'm not mistaken. Also, there are versions of the portfolio for 70/30 60/40 40/60 and 20/80 and he doesn't appear to suggest that lower quality fixed income is acceptable for the variations with lower equity allocations.

https://www.bogleheads.org/blog/david-s ... l-success/

msterrr
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Re: VFITX, VBIIX or VBMFX for Swensen portfolio?

Post by msterrr » Mon Oct 09, 2017 6:18 am

CyberBob wrote:
Sat Oct 07, 2017 10:19 pm
If you read his book Unconventional Success or Pioneering Portfolio Management, you'll see he definitely recommends pure treasury. Somebody emailed him a few years back and he responded that you should match the duration of the overall treasury market.

VFITX would get you pretty close (although it's not an index fund). The only better option might be a 'total treasury' index fund like iShares U.S. Treasury Bond ETF (GOVT).
Agreed. I was originally VBIIX / VIPSX but switched to VFITX / VIPSX for this reason. VBIIX and VBMFX both have high enough treasury allocations to consider them though. Maybe instead of considering VBIIX / VBMFX over the default VFITX for a Swensen style allocation upping ones equity allocation or spicing with riskier VWEHX / VWESX would be more appropriate?

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