Poll: Do you own bond ETFs?

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Do you own bond ETFs?

Yes, more than 10% of my bond allocation and I automatically reinvest dividends.
15
22%
Yes, more than 10% of my bond allocation but I don't automatically reinvest dividends.
14
20%
Yes, more than 10% of my bond allocation but I don't automatically reinvest dividends.
14
20%
Yes, less than 10% of my bond allocation and I automatically reinvest dividends.
5
7%
Yes, less than 10% of my bond allocation and I automatically reinvest dividends.
5
7%
Yes, less than 10% of my bond allocation but I don't automatically reinvest dividends.
8
12%
Yes, less than 10% of my bond allocation but I don't automatically reinvest dividends.
8
12%
 
Total votes: 69

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natureexplorer
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Poll: Do you own bond ETFs?

Post by natureexplorer » Fri Jun 04, 2010 9:11 am

Do you own bond ETFs?

If you do, please let us know which one and whether you automatically reinvest dividends. What is your motivation to own those ETFs (for example ER, not available as mutual fund, etc).

If you don't own bond ETFs, why don't you? For example is it conincidence because your 401k only offers mutual funds and that is where all your bonds are, or are you making a conscious decision against bond ETFs?

livesoft
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Post by livesoft » Fri Jun 04, 2010 9:44 am

I don't own bond funds because I can put almost all my bonds in 401(k), 403(b), and Admiral shares in IRAs. The other bonds are in the Vanguard GNMA fund and there is no GNMA ETF to my knowledge (MBB does not count).

Almost all our equities are in ETFs, so I really like ETFs.

Presently, I would achieve no cost savings with bond ETFs. I also do not like the idea of letting the broker reinvest after the distribution using a price they choose even if they tell us the method in advance. I have seen the thread that showed it really didn't matter if you didn't re-invest at the NAV (like you would with the fund), but I still cannot come to grips with that.

It may be that I use a bond ETF in the future.

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Post by hsv_climber » Fri Jun 04, 2010 9:51 am

I don't have enough money to qualify for Admiral shares, so I use several Vanguard bond ETFs ( Interm. Treasury, Short-Term & Short-term investment grade), as well as TIP.

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bob90245
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Re: Poll: Do you own bond ETFs?

Post by bob90245 » Fri Jun 04, 2010 10:34 am

natureexplorer wrote:Do you own bond ETFs?
No.
natureexplorer wrote:If you don't own bond ETFs, why don't you?
I own bond funds in my tax-advantaged accoumts. I own a Stable Value fund as my bond-equivalent in my 401k. And I own the Vanguard GNMA fund in my Traditional IRA. It's simple, convenient, commission-free and distributions are reinvested automatically.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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Post by Specialized » Fri Jun 04, 2010 10:44 am

I own TIP and IEI in my Schwab PCRA account, part of my 401k plan. Schwab charges $8.95/trade for non-Schwab ETF's and $25/trade for non-Schwab mutual funds. I typically transfer funds from the regular 401k options to the PCRA account once a year to minimize transaction costs. Schwab offers dividend reinvest, which I'm happy to use because I don't know where else to direct the dividends.

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Re: Poll: Do you own bond ETFs?

Post by livesoft » Fri Jun 04, 2010 10:44 am

bob90245 wrote:It's simple, convenient, commission-free and distributions are reinvested automatically.
This statement no longer distinguishes between bond funds and bond ETFs. Both are simple, convenient, commission-free, and distributions are reinvested automatically. I guess this is the point of the poll.

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Doc
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Post by Doc » Fri Jun 04, 2010 11:00 am

I "slice and dice" bonds to eliminate or reduce some of the less desirable attributes of TBM like MBS and long term bonds. This also allows me to add substantial TIPS without over weighting Treasuries. I also get some account placement advantages. ETFs give me better control over allocations than traditional mutual funds. There are very few traditional bond mutual funds that are indexed, outside of total bond market funds.

Except in unusual circumstances I don't reinvest any dividends - bond or equity.
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Post by 555 » Fri Jun 04, 2010 11:37 am

I read that some Vanguard bond MFunds cannot be converted to the equivalent ETF's, e.g. VBMFX to BND. Does anyone know why this is? (I'm sure there must be a good reason.)

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Post by Tortoise » Fri Jun 04, 2010 12:25 pm

I own BND and TIP in tax-advantaged accounts. The accounts are Roth 401k and SEP IRA, neither with Vanguard. I can buy higher cost bond mutual funds but ETFs are available in both. Thus, I have purchased large holdings of the ETFs and have them auto-reinvested since they are non-taxed in the case of Roth 401k and tax deferred in the IRA.
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tarnation
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Post by tarnation » Fri Jun 04, 2010 12:51 pm

I own BND and LTPZ. I reinvest divs on BND but not LTPZ.
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tarnation
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Post by tarnation » Fri Jun 04, 2010 12:57 pm

livesoft wrote:I don't own bond funds because I can put almost all my bonds in 401(k), 403(b), and Admiral shares in IRAs. The other bonds are in the Vanguard GNMA fund and there is no GNMA ETF to my knowledge (MBB does not count).
What about Vanguard Mortgage-Backed Securities ETF (VMBS)? I know it is not pure GNMA, but is all US agency.
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Post by livesoft » Fri Jun 04, 2010 1:04 pm

^You can't be serious! Look at the daily volume. Only $50K has traded just today. I would need a compelling reason to use an ETF with less than 100K shares average daily trading volume. So far, only VSS is compelling to me.
Last edited by livesoft on Fri Jun 04, 2010 1:36 pm, edited 1 time in total.

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nisiprius
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Re: Poll: Do you own bond ETFs?

Post by nisiprius » Fri Jun 04, 2010 1:20 pm

natureexplorer wrote:Do you own bond ETFs? If you do, please let us know which one and whether you automatically reinvest dividends. What is your motivation to own those ETFs (for example ER, not available as mutual fund, etc). If you don't own bond ETFs, why don't you? For example is it coincidence because your 401k only offers mutual funds and that is where all your bonds are, or are you making a conscious decision against bond ETFs?
I own the iShares TIP ETF.

I do so simply because I keep my individual TIPS in an account at Fidelity (I keep all my mutual funds at Vanguard) and as part of my tactics for managing them I wanted to park some of the proceeds from maturing TIPS in a) a TIPS fund, b) at Fidelity. I evaluated four possibilities: Fidelity's FINPX TIPS fund, American Century's ACITX TIPS fund, Vanguard's VIPSX TIPS, and iShares TIP ETF. The combination of fund quality and cost to hold at Fidelity led me to the iShares TIP fund.

I am embarrassed to say I don't know if I'm reinvesting dividends or not! It's whatever Fidelity defaults to. You've motivated me to go see. I expect I am. If I'm not, and if I can just check off a box and switch to reinvesting without it costing anything, I will.

In general, for the kinds of funds I invest in, and the kind of investing I do, I don't believe the difference between a mutual fund and a corresponding ETF is of any importance whatsoever. I've read some warning somewhere or other about bond ETFs but don't believe it's an issue with a giganormous plain-vanilla ETF like iShares TIP or Vanguard BND.

I prefer mutual funds for their convenience, user-friendliness, and familiarity. (Can you believe it? I purchased the iShares TIP as a market order, color me dumb. It turned out OK though).

P. S. It turns out I was not reinvesting dividends. It turns out it that dividend reinvestment can indeed be turned on with a few clicks on the Fidelity website. I did so and answered the poll accordingly.
Last edited by nisiprius on Fri Jun 04, 2010 1:45 pm, edited 2 times in total.
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Re: Poll: Do you own bond ETFs?

Post by Specialized » Fri Jun 04, 2010 1:33 pm

nisiprius wrote:(Can you believe it? I made the iShares TIP as a market order, color me dumb. It turned out OK though).
With a heavily traded ETF like TIP, it's highly unlikely that anything would go wrong with a market order. Limit orders should be used just to be on the safe side.

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CABob
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Post by CABob » Fri Jun 04, 2010 4:00 pm

No, because I prefer to own mutual funds directly with Vanguard. These are in a tax advantaged account and dividends are reinvested.
Bob

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tarnation
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Post by tarnation » Fri Jun 04, 2010 4:33 pm

livesoft wrote:^You can't be serious! Look at the daily volume. Only $50K has traded just today. I would need a compelling reason to use an ETF with less than 100K shares average daily trading volume. So far, only VSS is compelling to me.
You just said there wasn't one to your knowledge. I didn't really study its particulars, since I'm not looking for a MBS ETF.

VSS is less than 100K avg., why is it ok? LTPZ is way less than 100K avg. why is it not ok?
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Post by livesoft » Fri Jun 04, 2010 4:55 pm

I was writing about a pure GNMA etf, not an etf with FannieMae and FreddieMac bonds. I did mention that MBB was not valid to me and VMBS appears to be of same genre.

VSS is OK to me because I crave small-cap foreign investments which have both developing and developed market equities in them. I usually make investments in the $100K minimum range. With the share price of VSS around $75, this is less than 2000 shares.

LTPZ? Blech! It had less than $25,000 traded today. In contrast TIP has over $200 million traded today. What does LTPZ offer that TIP does not for the difference in volume? Sure, you can write, "My trade was 100% of the volume today of LTPZ! I'm big time now!", but I don't think that's something folks would want to do.

If one wishes to buy and sell an ETF relatively painlessly, then I think it needs to have a pretty decent volume which translates to "other people are also interested in it." If other people are not interested, you will get stuck with it or if you have to unload, you will not get a good price.

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Post by GammaPoint » Fri Jun 04, 2010 5:17 pm

I have the TBM mutual fund, even though I don't have admiral shares. I'm considering converting these to the BND ETF, but haven't done it yet. Even though I don't have much in the fund, I imagine the ER savings of the ETF would eliminate any possible losses through automatic reinvestment of the dividends.

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Post by livesoft » Fri Jun 04, 2010 5:39 pm

^ It seems appropriate to put the link for the BND re-investment thread here: http://www.bogleheads.org/forum/viewtopic.php?p=699063

The empirical evidence was that re-investing BND dividends back in BND did not lose you anything.

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Post by GammaPoint » Fri Jun 04, 2010 6:27 pm

livesoft wrote:^ It seems appropriate to put the link for the BND re-investment thread here: http://www.bogleheads.org/forum/viewtopic.php?p=699063

The empirical evidence was that re-investing BND dividends back in BND did not lose you anything.
Thanks for adding that link in there. I wasn't really referring to "frictional losses" but more the possible loss of letting VG do a market order for the reinvestment rather than being careful and using a limit order. But I suppose the spread on BND is probably tiny anyway.

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Post by tarnation » Fri Jun 04, 2010 10:09 pm

livesoft wrote:I was writing about a pure GNMA etf, not an etf with FannieMae and FreddieMac bonds. I did mention that MBB was not valid to me and VMBS appears to be of same genre.

VSS is OK to me because I crave small-cap foreign investments which have both developing and developed market equities in them. I usually make investments in the $100K minimum range. With the share price of VSS around $75, this is less than 2000 shares.

LTPZ? Blech! It had less than $25,000 traded today. In contrast TIP has over $200 million traded today. What does LTPZ offer that TIP does not for the difference in volume? Sure, you can write, "My trade was 100% of the volume today of LTPZ! I'm big time now!", but I don't think that's something folks would want to do.

If one wishes to buy and sell an ETF relatively painlessly, then I think it needs to have a pretty decent volume which translates to "other people are also interested in it." If other people are not interested, you will get stuck with it or if you have to unload, you will not get a good price.
My trades are not a large as yours in absolute terms, so I can probably get by with lower volume ETFs.
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Post by manuvns » Fri Jun 04, 2010 10:17 pm

yes but i only own exotic bond etf like emerging market bond etf (PCY) and build america bond etf (BAB) which are harder to find or more expensive as regular funds

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Post by TO39 » Sat Jun 05, 2010 12:08 am

I own MLN ITM and SHM in taxable. 20 % shm 12 % mln and 8 % itm.

I own TIP, IEF, and SHY in roth. 13% TIP and IEF each. 24% SHY

I own DODIX in 401K. 25 %. Also 25% in stable fund

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Post by Culture » Sat Jun 05, 2010 10:27 am

I invest in the Barlays TIPS ETF because this is the only way to get a reasonable cost bond fund for the money I have at Schwab and Fidelity. Dividends are reinvested.

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Re: Poll: Do you own bond ETFs?

Post by Sriracha » Sat Jun 05, 2010 11:11 am

natureexplorer wrote:Do you own bond ETFs?

If you do, please let us know which one and whether you automatically reinvest dividends. What is your motivation to own those ETFs (for example ER, not available as mutual fund, etc).

If you don't own bond ETFs, why don't you? For example is it conincidence because your 401k only offers mutual funds and that is where all your bonds are, or are you making a conscious decision against bond ETFs?
No bond EFT's here. Looked at the vehicle for info purposes, but that's academic for me. Our bond split is mostly in the 401K (only funds offered), and that's our largest sheltered account. Some TIPS in IRAs.

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Post by ruralavalon » Sat Jun 05, 2010 4:22 pm

No. We have most of our bond allocation in Treasury STRIPS laddered for retirement income, and about 12% of the bond allocation in short term investment grade as a cash proxy.
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natureexplorer
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Post by natureexplorer » Tue Jun 08, 2010 1:34 pm

Thanks for responding everyone! Interesting results that some 31% indeed do own bond ETFs. Of those 31%, 44% autmatically reinvest dividends.

I find the 31% number surprisingly high, particularly considering that some are not using bond ETFs for reasons that have little to do with them being ETFs. For example, some have all their bonds in 401ks that only offer mutual funds to begin with. Some have Admiral shares so there would be no ER savings with ETFs. Some want to invest in bonds for which even Vanguard investor shares are the best option (e.g. GNMA).

As for me, I do not own bond ETFs (although I did in my prebogle days including automatic dividends reinvestment).
In my 401k I only have access to mutual funds. I obviously automatically reinvest those dividends.
In my taxable account, Vanguard tax-exempt Admiral shares seem to be without a doubt the best option. I do not automatically reinvest dividends in taxable to simplify tax reporting and to facilitate getting closer to my target allocation.
In my Roth IRA, I do have a real choice between ETFs and mutual funds. I currently use Vanguard mutual funds, but I have been wondering whether I am overreacting, hence the post. Admiral shares are far out of reach for me in this account and bond ETFs would result in a savings on ER. However I'd be paying a bid/ask-spread on the initial investment as well as on dividend reinvestments. Since I make only one annual contribution to my Roth IRA, I would probably want the dividends to be automatically reinvested, particularly since bond ETFs distribute montly.

To put this in perspective, all my equities are in ETFs and I do not reinvest dividends as I lump them in with new money for the same reasons I do not automatically reinvest dividends on the Vanguard tax-exempt mutual fund.

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Post by 555 » Tue Jun 08, 2010 11:23 pm

555 wrote:I read that some Vanguard bond MFunds cannot be converted to the equivalent ETF's, e.g. VBMFX to BND. Does anyone know why this is? (I'm sure there must be a good reason.)
Does anyone know why this is? I know they have a separate TBM and TBM2 for various reasons (which I don't fully understand either), so I was wondering if they were also not allowing MF to ETF conversion of the bond funds for similar reasons.

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tarnation
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Post by tarnation » Wed Jun 09, 2010 12:16 am

555 wrote:
555 wrote:I read that some Vanguard bond MFunds cannot be converted to the equivalent ETF's, e.g. VBMFX to BND. Does anyone know why this is? (I'm sure there must be a good reason.)
Does anyone know why this is? I know they have a separate TBM and TBM2 for various reasons (which I don't fully understand either), so I was wondering if they were also not allowing MF to ETF conversion of the bond funds for similar reasons.
I believe they instituted that rule after the fixed income ETF's started maintaining a persistent premium, otherwise it would be a free arbitrage, i.e. Flagship folk could have converted for free at NAV, then used their free trades to sell at premium.
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Post by 555 » Wed Jun 09, 2010 1:38 am

tarnation wrote:
555 wrote:
555 wrote:I read that some Vanguard bond MFunds cannot be converted to the equivalent ETF's, e.g. VBMFX to BND. Does anyone know why this is? (I'm sure there must be a good reason.)
Does anyone know why this is? I know they have a separate TBM and TBM2 for various reasons (which I don't fully understand either), so I was wondering if they were also not allowing MF to ETF conversion of the bond funds for similar reasons.
I believe they instituted that rule after the fixed income ETF's started maintaining a persistent premium, otherwise it would be a free arbitrage, i.e. Flagship folk could have converted for free at NAV, then used their free trades to sell at premium.
Okay, I understand that reasoning. But then the next question is, why would these bond ETF's start (and continue?) maintaining a persistent premium?

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Post by anthau » Wed Jun 09, 2010 5:40 am

I own Vanguard Total Bond Market ETF but don't reinvest dividends, though the lack of reinvestment is because Scottrade doesn't accommodate it. Being self-employed makes my savings sporadic; if my savings were more periodic, I'd likely switch to Dreyfus Bond Market Index Inv (ER: 0.4%).
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