Emerging Market Bond Fund Choice

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
an_asker
Posts: 4903
Joined: Thu Jun 27, 2013 2:15 pm

Emerging Market Bond Fund Choice

Post by an_asker »

For this category, I've been using the Payden emerging market bond fund for a while. I recently learned that Vanguard has its own offering - the Vanguard Emerging Bond Fund. Neither of the funds is an index fund - which I like because I think there is some value in having a professional go to bat for me. A comparison on Morningstar yielded the following:

- VEMBX - expense ratio 0.60%; turnover = 261%; total return since inception (03/2016) ~ 21%
- PYEMX - expense ratio 0.75%; turnover = 46%; total return for same timeframe ~ 20%

While I see that Vanguard has a lower expense ratio, that turnover difference is staggering. Note that this would not be in a taxable account.

My question: should I stick with Payden or switch to Vanguard?
RadAudit
Posts: 4386
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Emerging Market Bond Fund Choice

Post by RadAudit »

How much of the turnover in VG is due to the asset growth in the fund since its inception?
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
not4me
Posts: 961
Joined: Thu May 25, 2017 3:08 pm

Re: Emerging Market Bond Fund Choice

Post by not4me »

I would expect the relatively "young age" of the Vanguard fund to account for at least some of the turnover. It is also about one fifth the size of the Payden fund which has been around almost 20 years. I'm not familiar with either & so took a quick look. One thing that stuck out was that their larger holdings were in different countries. That raised the possibility they may have different approaches and/or objectives. Depending upon your objective in owning, I'd look into the prospectus to see which I expected to best fit my need/want. Especially if you have been ok with Payden, I'd take my time & see how Vanguard deals with growing pains. I wouldn't personally switch to save on expense ratio only.
User avatar
Dale_G
Posts: 3466
Joined: Tue Feb 20, 2007 4:43 pm
Location: Central Florida - on the grown up side of 85

Re: Emerging Market Bond Fund Choice

Post by Dale_G »

Wow, this is a surprise. I own VWOB, the ETF class of Vanguard Emerging Markets Bond Index Fund, but VEMBX Investor and VEGBX Admiral Vanguard Emerging Markets Bond Fund) slipped in under my radar.

The Investor shares show 32.4 million of assets as of 11/30/17 and the Admiral shares show dashes for assets. I've been interested in an non-index Emerging Markets bond fund with at least some corporates. Maybe I will buy on Monday just so Vanguard can show 0.05 million in Admiral class assets. :D

I am surprised at how small this fund is given that is more than 1-1/2 years old. I'd buy in an IRA, so no tax harm if they end up killing the fund.

I just did a practice trade, the Admiral class fund VEGBX does not come up when I search for funds to exchange into by name, but entering VEGBX does work.

This might not be a good fund for someone chasing income. As a diversifier - maybe.

Dale
Volatility is my friend
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

Dale_G wrote: Sat Dec 16, 2017 11:19 pm Wow, this is a surprise. I own VWOB, the ETF class of Vanguard Emerging Markets Bond Index Fund, but VEMBX Investor and VEGBX Admiral Vanguard Emerging Markets Bond Fund) slipped in under my radar.

The Investor shares show 32.4 million of assets as of 11/30/17 and the Admiral shares show dashes for assets. I've been interested in an non-index Emerging Markets bond fund with at least some corporates. Maybe I will buy on Monday just so Vanguard can show 0.05 million in Admiral class assets. :D

I am surprised at how small this fund is given that is more than 1-1/2 years old. I'd buy in an IRA, so no tax harm if they end up killing the fund.

I just did a practice trade, the Admiral class fund VEGBX does not come up when I search for funds to exchange into by name, but entering VEGBX does work.

This might not be a good fund for someone chasing income. As a diversifier - maybe.

Dale
It's not really that old. It opened to retail investors two weeks ago: viewtopic.php?t=233938

It was open for a long time without really being open. We had a thread discussing the fact that it was announced (December 2015) and then launched (March 2016), but a year later was still not really open to investors. The Investor Shares finally opened this month, and the Admiral Shares launched.

Edited to add: Here's a link to the Vanguard fund announcement from December 6, 2017. It opens with the following explanation:
Vanguard today opened Vanguard Emerging Markets Bond Fund to all investors, offering broad, actively managed exposure to emerging fixed income markets.

The fund was launched in March 2016, with Vanguard as its sole investor. It invests predominantly in U.S. dollar-denominated debt issued by governments in emerging markets and government-owned enterprises in those markets.
tibbitts
Posts: 23716
Joined: Tue Feb 27, 2007 5:50 pm

Re: Emerging Market Bond Fund Choice

Post by tibbitts »

The turnover given the fund's circumstances doesn't matter.

I asked in another thread for expense ratio forecasts for both share classes but nobody made any. Emerging Markets Select has been persistently expensive so far but I haven't looked into the compensation scheme it uses - maybe it has outperformed, etc.

I'd be into the Bond fund at .45% but $50k to get there is a lot. I do have $30k in the Fidelity fund at .86%(!) and have no complaints about it except the expense ratio.
User avatar
Dale_G
Posts: 3466
Joined: Tue Feb 20, 2007 4:43 pm
Location: Central Florida - on the grown up side of 85

Re: Emerging Market Bond Fund Choice

Post by Dale_G »

Thanks jhfenton for providing the true scoop. I missed the earlier threads about the fund - so yup, this fund was totally below my radar.

Back in the very early 80's (when Vanguard was about 1/5000th of its present size I owned a bit more than 1% of one of their funds. It felt like I was a meaningful owner :) Those days are over, but maybe I can own 1/10th of 1% of the International Emerging Markets bond fund for a short time - until it shrinks to .0001% of the fund. Meaningless I know, but WTH.

Dale
Volatility is my friend
Topic Author
an_asker
Posts: 4903
Joined: Thu Jun 27, 2013 2:15 pm

Re: Emerging Market Bond Fund Choice

Post by an_asker »

tibbitts wrote: Sun Dec 17, 2017 10:35 am The turnover given the fund's circumstances doesn't matter.

I asked in another thread for expense ratio forecasts for both share classes but nobody made any. Emerging Markets Select has been persistently expensive so far but I haven't looked into the compensation scheme it uses - maybe it has outperformed, etc.

I'd be into the Bond fund at .45% but $50k to get there is a lot. I do have $30k in the Fidelity fund at .86%(!) and have no complaints about it except the expense ratio.
Don't know which fund you're talking about but the Payden fund is available at Schwab for a minimum of (IIRC) $2500 and you can have an automatic investment plan (forget what the minimum for that is).
Topic Author
an_asker
Posts: 4903
Joined: Thu Jun 27, 2013 2:15 pm

Re: Emerging Market Bond Fund Choice

Post by an_asker »

jhfenton wrote: Sun Dec 17, 2017 7:02 am
Dale_G wrote: Sat Dec 16, 2017 11:19 pm Wow, this is a surprise. I own VWOB, the ETF class of Vanguard Emerging Markets Bond Index Fund, but VEMBX Investor and VEGBX Admiral Vanguard Emerging Markets Bond Fund) slipped in under my radar.

The Investor shares show 32.4 million of assets as of 11/30/17 and the Admiral shares show dashes for assets. I've been interested in an non-index Emerging Markets bond fund with at least some corporates. Maybe I will buy on Monday just so Vanguard can show 0.05 million in Admiral class assets. :D

I am surprised at how small this fund is given that is more than 1-1/2 years old. I'd buy in an IRA, so no tax harm if they end up killing the fund.

I just did a practice trade, the Admiral class fund VEGBX does not come up when I search for funds to exchange into by name, but entering VEGBX does work.

This might not be a good fund for someone chasing income. As a diversifier - maybe.

Dale
It's not really that old. It opened to retail investors two weeks ago: viewtopic.php?t=233938

It was open for a long time without really being open. We had a thread discussing the fact that it was announced (December 2015) and then launched (March 2016), but a year later was still not really open to investors. The Investor Shares finally opened this month, and the Admiral Shares launched.

Edited to add: Here's a link to the Vanguard fund announcement from December 6, 2017. It opens with the following explanation:
Vanguard today opened Vanguard Emerging Markets Bond Fund to all investors, offering broad, actively managed exposure to emerging fixed income markets.

The fund was launched in March 2016, with Vanguard as its sole investor. It invests predominantly in U.S. dollar-denominated debt issued by governments in emerging markets and government-owned enterprises in those markets.
I missed the original threads here, but I did - like I said - receive a targeted email from one of my mailing lists that informed me about the fund... and that it recently got opened to individual investors.
User avatar
SpringMan
Posts: 5422
Joined: Wed Mar 21, 2007 11:32 am
Location: Michigan

Re: Emerging Market Bond Fund Choice

Post by SpringMan »

I bought VEGBX last week in a Roth. Our stock/bond target needed to be rebalanced due to the recent equity run up. Morningstar does not recognize VEGBX (admiral shares) but does recognize VEMBX (investor shares). They have been notified, in the meantime I use VEMBX for portfolio xray purposes.
Best Wishes, SpringMan
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

SpringMan wrote: Sun Jan 07, 2018 12:01 pm I bought VEGBX last week in a Roth. Our stock/bond target needed to be rebalanced due to the recent equity run up. Morningstar does not recognize VEGBX (admiral shares) but does recognize VEMBX (investor shares). They have been notified, in the meantime I use VEMBX for portfolio xray purposes.
And M* still doesn’t have most of the usual portfolio statistics for VEMBX. It leaves a gap in the fixed income style box. I’m hoping the December 31, 2017 data will show up soon and fill in the gaps. I’m also curious what it added in assets in the three weeks in December after its official opening.
User avatar
spdoublebass
Posts: 889
Joined: Thu Apr 27, 2017 10:04 pm
Location: NY

Re: Emerging Market Bond Fund Choice

Post by spdoublebass »

Just to be clear:

VEGBX/VEMBX= Is an emerging market bond fund made up of corporate bonds. This fund does not hold Government bonds.

VWOB/VGAVX= is emerging market Government Bonds only.



I read the overview and breakdown at Vanguard, but it just lists them both as foreign.
I'm trying to think, but nothing happens
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

spdoublebass wrote: Sun Jan 07, 2018 2:25 pm VWOB/VGAVX= is emerging market Government Bonds only.
Yes. Only government. And it's an index fund.
spdoublebass wrote: Sun Jan 07, 2018 2:25 pm Just to be clear:

VEGBX/VEMBX= Is an emerging market bond fund made up of corporate bonds. This fund does not hold Government bonds.
No. This fund holds both corporate and government bonds, depending on the choices of the managers. At the moment, a majority of the holdings are government bonds. The top two holdings are corporate, Petrobras and Pemex, but only five of the top 20. 14 of the top 20 are sovereign. One holding was issued by the West African Development Bank, a multistate NGO.
RetireBy55
Posts: 278
Joined: Wed Nov 30, 2016 5:20 pm

Re: Emerging Market Bond Fund Choice

Post by RetireBy55 »

FNMIX has an only slightly higher ER, significantly greater assets, TTM yield > 5% and - most importantly - a long term track record of top 15% performance over 3, 5 and 10 year periods..we have a fairly decent holding in it..
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

RetireBy55 wrote: Sun Jan 07, 2018 5:43 pm FNMIX has an only slightly higher ER, significantly greater assets, TTM yield > 5% and - most importantly - a long term track record of top 15% performance over 3, 5 and 10 year periods..we have a fairly decent holding in it..
I agree that FNMIX is an excellent fund. But...it has an ER of 83 bp with $6.4 billion in assets. VEGBX (Admiral Shares) has an ER of 45 bp with $34 million in assets, and I have no doubt that it will drop as assets increase. VEMBX at 60 bp is closer, but even 23 bp is large enough that it will take a significant increase in risk to make up the difference in yield.

Given Vanguard's tendencies, I expect VEGBX/VEMBX to be a bit tamer than FNMIX over the long haul. I wouldn't be surprised if their returns ended up quite similar, with FNMIX having a bit more volatility along the way.
SlowMovingInvestor
Posts: 3486
Joined: Sun Sep 11, 2016 11:27 am

Re: Emerging Market Bond Fund Choice

Post by SlowMovingInvestor »

I own some EMB (iShares JPMorgan USD ETF) . I haven't really compared it much to other emerging market bond ETFs or MFs. I'd be interest in hearing comments on EMB vs. VWOB.
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

SlowMovingInvestor wrote: Sun Jan 07, 2018 6:10 pm I own some EMB (iShares JPMorgan USD ETF) . I haven't really compared it much to other emerging market bond ETFs or MFs. I'd be interest in hearing comments on EMB vs. VWOB.
EMB and VWOB have tracked very closely since VWOB was launched (see chart). EMB appears to be slightly riskier. EMB has a slightly higher yield despite a slightly higher ER (40 bp vs 32 bp), and it appears to be a bit more volatile in the chart. It drops below VWOB slightly during downturns, but catches back up and inches head during upturns.

Image
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

jhfenton wrote: Sun Jan 07, 2018 2:19 pm
SpringMan wrote: Sun Jan 07, 2018 12:01 pm I bought VEGBX last week in a Roth. Our stock/bond target needed to be rebalanced due to the recent equity run up. Morningstar does not recognize VEGBX (admiral shares) but does recognize VEMBX (investor shares). They have been notified, in the meantime I use VEMBX for portfolio xray purposes.
And M* still doesn’t have most of the usual portfolio statistics for VEMBX. It leaves a gap in the fixed income style box. I’m hoping the December 31, 2017 data will show up soon and fill in the gaps. I’m also curious what it added in assets in the three weeks in December after its official opening.
I submitted a help request too. With what I added today to VEMBX, I'll be able to convert to the Admiral Shares tomorrow. It'll actually be the first time I've ever done an Investor to Admiral conversion. All my other funds have always either started out Admiral or don't have Admiral (e.g., Vanguard OH Long-Term Tax Exempt and Vanguard FTSE All-World ex-US Small Cap).

I was actually able to add VEGBX to the Portfolio Manager as a test. It pulls the correct price, name, and the bond/cash breakdown for the fund, but nothing else. And there is no quote page.

I also discovered that VEGBX is a recycled ticker. It used to belong to Van Kampen Equity Growth B (2008 M* PDF). Van Kampen Equity Growth is still around (VEGAX), but not the B share class. If you search for VEGBX in Yahoo Finance, you also get the correct current price, but the old name.
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

SpringMan wrote: Sun Jan 07, 2018 12:01 pm I bought VEGBX last week in a Roth. Our stock/bond target needed to be rebalanced due to the recent equity run up. Morningstar does not recognize VEGBX (admiral shares) but does recognize VEMBX (investor shares). They have been notified, in the meantime I use VEMBX for portfolio xray purposes.
A M* rep got back to me today and said that at my request he had escalated the missing classification details for VEMBX. He also offered this gem on VEGBX:
However, I have Confirmed [sic] with data analyst <name redacted> that the (VEGBX) share class is not public at this time. Vanguard has no plans to make it availiable [sic] to retail investors as this time. For future inquiries, please reach out to vanguard_media_relations@vanguard.com.
I responded people that I currently owned VEGBX, so I knew in fact that it was available. I provided a link to Vanguard's December 6 press release.

He said he would re-escalate the issue. :)
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

SpringMan wrote: Sun Jan 07, 2018 12:01 pm I bought VEGBX last week in a Roth. Our stock/bond target needed to be rebalanced due to the recent equity run up. Morningstar does not recognize VEGBX (admiral shares) but does recognize VEMBX (investor shares). They have been notified, in the meantime I use VEMBX for portfolio xray purposes.
SpringMan, Did you receive your dividends on VEGBX last night? I did not. I have dividends set to reinvest, so I should have received a little over 5.5 shares via reinvested dividends. I also did not receive any cash. All four of my other bond funds in various accounts reinvested dividends. According to the VEGBX fund profile page Record Date was 01/30/18, Reinvest Date was 01/31/18, and Payable Date is today, all the same as my bond index funds (VSIGX, VICSX, VSCSX) that showed reinvested dividends today.
User avatar
SpringMan
Posts: 5422
Joined: Wed Mar 21, 2007 11:32 am
Location: Michigan

Re: Emerging Market Bond Fund Choice

Post by SpringMan »

jhfenton wrote: Thu Feb 01, 2018 9:40 am
SpringMan wrote: Sun Jan 07, 2018 12:01 pm I bought VEGBX last week in a Roth. Our stock/bond target needed to be rebalanced due to the recent equity run up. Morningstar does not recognize VEGBX (admiral shares) but does recognize VEMBX (investor shares). They have been notified, in the meantime I use VEMBX for portfolio xray purposes.
SpringMan, Did you receive your dividends on VEGBX last night? I did not. I have dividends set to reinvest, so I should have received a little over 5.5 shares via reinvested dividends. I also did not receive any cash. All four of my other bond funds in various accounts reinvested dividends. According to the VEGBX fund profile page Record Date was 01/30/18, Reinvest Date was 01/31/18, and Payable Date is today, all the same as my bond index funds (VSIGX, VICSX, VSCSX) that showed reinvested dividends today.
No, I did not see my dividend. No sign of it under Transaction History or Pending tabs either. I have Vanguard looking into it. This kind of thing does not instill confidence.
Best Wishes, SpringMan
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

SpringMan wrote: Thu Feb 01, 2018 6:15 pm
jhfenton wrote: Thu Feb 01, 2018 9:40 am
SpringMan wrote: Sun Jan 07, 2018 12:01 pm I bought VEGBX last week in a Roth. Our stock/bond target needed to be rebalanced due to the recent equity run up. Morningstar does not recognize VEGBX (admiral shares) but does recognize VEMBX (investor shares). They have been notified, in the meantime I use VEMBX for portfolio xray purposes.
SpringMan, Did you receive your dividends on VEGBX last night? I did not. I have dividends set to reinvest, so I should have received a little over 5.5 shares via reinvested dividends. I also did not receive any cash. All four of my other bond funds in various accounts reinvested dividends. According to the VEGBX fund profile page Record Date was 01/30/18, Reinvest Date was 01/31/18, and Payable Date is today, all the same as my bond index funds (VSIGX, VICSX, VSCSX) that showed reinvested dividends today.
No, I did not see my dividend. No sign of it under Transaction History or Pending tabs either. I have Vanguard looking into it. This kind of thing does not instill confidence.
Thanks. I'm glad it's not a "me" problem. :beer I was going to wait until tomorrow to see if it showed up before I called them.
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

SpringMan wrote: Thu Feb 01, 2018 6:15 pm
jhfenton wrote: Thu Feb 01, 2018 9:40 am
SpringMan wrote: Sun Jan 07, 2018 12:01 pm I bought VEGBX last week in a Roth. Our stock/bond target needed to be rebalanced due to the recent equity run up. Morningstar does not recognize VEGBX (admiral shares) but does recognize VEMBX (investor shares). They have been notified, in the meantime I use VEMBX for portfolio xray purposes.
SpringMan, Did you receive your dividends on VEGBX last night? I did not. I have dividends set to reinvest, so I should have received a little over 5.5 shares via reinvested dividends. I also did not receive any cash. All four of my other bond funds in various accounts reinvested dividends. According to the VEGBX fund profile page Record Date was 01/30/18, Reinvest Date was 01/31/18, and Payable Date is today, all the same as my bond index funds (VSIGX, VICSX, VSCSX) that showed reinvested dividends today.
No, I did not see my dividend. No sign of it under Transaction History or Pending tabs either. I have Vanguard looking into it. This kind of thing does not instill confidence.
My VEGBX dividends were posted this morning, dated yesterday, but with the correct reinvestment price from Wednesday. The dividend amount and share count matched my calculations perfectly. :beer
User avatar
SpringMan
Posts: 5422
Joined: Wed Mar 21, 2007 11:32 am
Location: Michigan

Re: Emerging Market Bond Fund Choice

Post by SpringMan »

My VEGBX dividend just showed up too.
Best Wishes, SpringMan
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

For the record, VEGBX has outperformed every other EM bond fund referenced in this thread since the 12/15/17 thread start date. That's not to say that any of them are positive, but VEGBX has held up well in a period of turmoil in emerging markets. It has essentially matched most U.S. intermediate bond funds over the period, albeit with more volatility.

Ticker Growth of $10K
VEGBX $9,851.72 (-1.48%) (Vang EM Bond Admiral)
VWOB $9,585.86 (-4.14%) (Vang EM Govt Bond Index ETF)
PYEMX $9,380.94 (-6.19%) (Payden EM Bond)
EMB $9,410.28 (-5.90%) (iShares EM Bond ETF)
FNMIX $9,286.15 (-7.14%) (Fidelity New Markets Income)

VBTLX $9,839.94 (-1.60%) (Vang Total Bond)
VSIGX $9,848.26 (-1.51%) (Vang Int Treasury Index Adm)
VICSX $9,790.64 (-2.09%) (Vang Int Corp Index Adm)

VEGBX outperformed during its 18-month closed launch too, but I don't think it's fair to include the period when it had no outside investors.

As of 7/31/18, VEGBX/VEMBX had $97.8 MM in assets up from $11.3 MM when it launched in early December last year.
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: Emerging Market Bond Fund Choice

Post by HEDGEFUNDIE »

jhfenton wrote: Thu Sep 13, 2018 11:41 am For the record, VEGBX has outperformed every other EM bond fund referenced in this thread since the 12/15/17 thread start date. That's not to say that any of them are positive, but VEGBX has held up well in a period of turmoil in emerging markets. It has essentially matched most U.S. intermediate bond funds over the period, albeit with more volatility.

Ticker Growth of $10K
VEGBX $9,851.72 (-1.48%) (Vang EM Bond Admiral)
VWOB $9,585.86 (-4.14%) (Vang EM Govt Bond Index ETF)
PYEMX $9,380.94 (-6.19%) (Payden EM Bond)
EMB $9,410.28 (-5.90%) (iShares EM Bond ETF)
FNMIX $9,286.15 (-7.14%) (Fidelity New Markets Income)

VBTLX $9,839.94 (-1.60%) (Vang Total Bond)
VSIGX $9,848.26 (-1.51%) (Vang Int Treasury Index Adm)
VICSX $9,790.64 (-2.09%) (Vang Int Corp Index Adm)

VEGBX outperformed during its 18-month closed launch too, but I don't think it's fair to include the period when it had no outside investors.

As of 7/31/18, VEGBX/VEMBX had $97.8 MM in assets up from $11.3 MM when it launched in early December last year.
What I find most interesting about VEGBX is that it has exhibited lower correlation to US TSM than VWOB. I would have expected the opposite, with the lack of corporate bonds in VWOB.

https://www.portfoliovisualizer.com/ass ... ingDays=60

Higher diversification AND higher return? Yes please!
dh
Posts: 643
Joined: Sun Mar 13, 2011 8:01 pm

Re: Emerging Market Bond Fund Choice

Post by dh »

One January 1, I reviewed my IPS and made the decision to add another asset class to further diversify my portfolio. I spent this past month grappling with adding either gold or EM bonds to diversify. I choose the latter and am ready to implement my change in February. I considered starting a new thread, yet decided to add my post after finding this thread on the choices at Vanguard.

I appreciated the discussion on the EM bond fund that only invests in government bonds and the fund that blends government and corporate bond; I am leaning toward the latter (Vanguard Emerging Markets Bond, VEMBX) but am open to learning more. It seems that many of the posters above have researched these funds for over a year and if anyone would care to further elaborate on the fund they use, I am would appreciate all Boglehead thoughts. Now that we are 1/12 of the way through 2019, I hope everyone is enjoying the new year!
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

dh wrote: Fri Feb 01, 2019 10:09 am One January 1, I reviewed my IPS and made the decision to add another asset class to further diversify my portfolio. I spent this past month grappling with adding either gold or EM bonds to diversify. I choose the latter and am ready to implement my change in February. I considered starting a new thread, yet decided to add my post after finding this thread on the choices at Vanguard.

I appreciated the discussion on the EM bond fund that only invests in government bonds and the fund that blends government and corporate bond; I am leaning toward the latter (Vanguard Emerging Markets Bond, VEMBX) but am open to learning more. It seems that many of the posters above have researched these funds for over a year and if anyone would care to further elaborate on the fund they use, I am would appreciate all Boglehead thoughts. Now that we are 1/12 of the way through 2019, I hope everyone is enjoying the new year!
I'm still very happy with VEGBX. It held up better during the 2018 emerging markets turmoil, and still managed to capture the entire December and January EM bond rally. It really does seem to capture distinct risks and sources of return from US equities, US bonds, and EM equities.

Image

Since the day after its 12/5/17 launch:

VEGBX +4.69%
VEMBX +4.52%
VWOB +0.65%
M* EM Bond Avg. -0.71%

VBTLX +1.03% (Vg Total Bond Index Adm)
VICSX +0.79% (Vg Int Corp Bond Index Adm)
dh
Posts: 643
Joined: Sun Mar 13, 2011 8:01 pm

Re: Emerging Market Bond Fund Choice

Post by dh »

jhfenton wrote: Fri Feb 01, 2019 10:30 am
Since the day after its 12/5/17 launch:

VEGBX +4.69%
VEMBX +4.52%
VWOB +0.65%
M* EM Bond Avg. -0.71%

VBTLX +1.03% (Vg Total Bond Index Adm)
VICSX +0.79% (Vg Int Corp Bond Index Adm)
Thank you, jhfenton. That is very helpful.
fennewaldaj
Posts: 1097
Joined: Sun Oct 22, 2017 11:30 pm

Re: Emerging Market Bond Fund Choice

Post by fennewaldaj »

I too own Vanguards newish active EM bond fund. Since I was trying to diversify my EM country exposure I thought that the fund and it seemed to do that better than the EM gov bond index fund. I also own some of the fidelity fund because I can buy it in my 403b/457/401a brokerage link (Vanguard's fund is not available even with a purchase fee there). My fidelity accounts make up 56% of my new money vs 15.5% for my IRAs so some compromises have to be made. I also just opened a position in an eaton vance local currency EM bond fund EIDOX. My target allocation is 6% international bonds (24% of total bonds) split 20% developed hedged 20% EM local 60% EM dollar denominated
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: Emerging Market Bond Fund Choice

Post by DB2 »

jhfenton wrote: Fri Feb 01, 2019 10:30 am

Since the day after its 12/5/17 launch:

VEGBX +4.69%
VEMBX +4.52%
VWOB +0.65%
M* EM Bond Avg. -0.71%

VBTLX +1.03% (Vg Total Bond Index Adm)
VICSX +0.79% (Vg Int Corp Bond Index Adm)
And the returns shown for these bond funds are always after expense ratios have been factored?

Also, I would have VEMBX in a taxable account - so it would only be capital gains taxes I would have to pay? Thanks!
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

DB2 wrote: Sun Feb 03, 2019 11:25 pm
jhfenton wrote: Fri Feb 01, 2019 10:30 am

Since the day after its 12/5/17 launch:

VEGBX +4.69%
VEMBX +4.52%
VWOB +0.65%
M* EM Bond Avg. -0.71%

VBTLX +1.03% (Vg Total Bond Index Adm)
VICSX +0.79% (Vg Int Corp Bond Index Adm)
And the returns shown for these bond funds are always after expense ratios have been factored?

Also, I would have VEMBX in a taxable account - so it would only be capital gains taxes I would have to pay? Thanks!
Yes. There is really no such thing as performance before expenses for ETFs and mutual funds. They are not allowed to report that.

I would never consider a high-yielding bond fund like VEMBX/VEGBX in taxable. You would pay tax on the entire yield as ordinary income. We hold it in my wife's rollover IRA.
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: Emerging Market Bond Fund Choice

Post by DB2 »

jhfenton wrote: Mon Feb 04, 2019 8:50 am
DB2 wrote: Sun Feb 03, 2019 11:25 pm
jhfenton wrote: Fri Feb 01, 2019 10:30 am

Since the day after its 12/5/17 launch:

VEGBX +4.69%
VEMBX +4.52%
VWOB +0.65%
M* EM Bond Avg. -0.71%

VBTLX +1.03% (Vg Total Bond Index Adm)
VICSX +0.79% (Vg Int Corp Bond Index Adm)
And the returns shown for these bond funds are always after expense ratios have been factored?

Also, I would have VEMBX in a taxable account - so it would only be capital gains taxes I would have to pay? Thanks!
Yes. There is really no such thing as performance before expenses for ETFs and mutual funds. They are not allowed to report that.

I would never consider a high-yielding bond fund like VEMBX/VEGBX in taxable. You would pay tax on the entire yield as ordinary income. We hold it in my wife's rollover IRA.
Good to hear on the expense ratio.

I'm in the 24% income tax bracket and I assume I would have to pay a 20% capital gains on the yield? Even paying that (assuming the yield remains similar), I am not aware of another bond (even municipal) that pays me anywhere near that as I don't have much money to use in my Roth for this. Any thoughts?
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

DB2 wrote: Mon Feb 04, 2019 8:55 am Good to hear on the expense ratio.

I'm in the 24% income tax bracket and I assume I would have to pay a 20% capital gains on the yield? Even paying that (assuming the yield remains similar), I am not aware of another bond (even municipal) that pays me anywhere near that as I don't have much money to use in my Roth for this. Any thoughts?
No. Bond yields are ordinary income. You'd pay 24% federal plus any state income tax. (We're in the 22% federal bracket and 4.6% Ohio bracket. With state taxes no longer deductible for us, we're in a simple 26.6% tax bracket.)

You'd be better off keeping equities in taxable and holding things like emerging market bonds in tax-advantaged accounts.

There's a Bogleheads wiki entry on Tax-efficient fund placement.

If we didn't have room in tax-advantaged for emerging markets bonds, I wouldn't hold them until we did. (We have been saving for 20+ years in tax-advantaged accounts, so >99% of our retirement assets are in tax-advantaged accounts.) If we had to pay 26.6% of our return every year in taxes, the risk-return calculation would change quite a bit.
azanon
Posts: 3142
Joined: Mon Nov 07, 2011 9:34 am

Re: Emerging Market Bond Fund Choice

Post by azanon »

I use VanEck Vectors JP Morgan EM LC Bond ETF at just 0.30% ER (EMLC). It has 5 billion AUM, so it's a well established ETF. IMO, you want the currency diversification along with the bonds themselves, and if volatility of the currency is really a concern, don't invest in any EM bonds, let alone local currency ones.
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: Emerging Market Bond Fund Choice

Post by DB2 »

jhfenton wrote: Mon Feb 04, 2019 9:16 am
DB2 wrote: Mon Feb 04, 2019 8:55 am Good to hear on the expense ratio.

I'm in the 24% income tax bracket and I assume I would have to pay a 20% capital gains on the yield? Even paying that (assuming the yield remains similar), I am not aware of another bond (even municipal) that pays me anywhere near that as I don't have much money to use in my Roth for this. Any thoughts?
No. Bond yields are ordinary income. You'd pay 24% federal plus any state income tax. (We're in the 22% federal bracket and 4.6% Ohio bracket. With state taxes no longer deductible for us, we're in a simple 26.6% tax bracket.)

You'd be better off keeping equities in taxable and holding things like emerging market bonds in tax-advantaged accounts.

There's a Bogleheads wiki entry on Tax-efficient fund placement.

If we didn't have room in tax-advantaged for emerging markets bonds, I wouldn't hold them until we did. (We have been saving for 20+ years in tax-advantaged accounts, so >99% of our retirement assets are in tax-advantaged accounts.) If we had to pay 26.6% of our return every year in taxes, the risk-return calculation would change quite a bit.
Good to know. My Roth accounts for about 13% of what I own; I was wanting to keep my bond allocation to around 20%. So, I do have room for some adjustments. Will have to give it some thoughts as I wanted to get some equity growth in my Roth as well.

I know this is somewhat unrelated, but what are your thoughts between the Emerging Market Funds: VMMSX and VWO? VMMSX is actively managed, but has seemed to outperform VWO.

Thanks again.
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

DB2 wrote: Mon Feb 04, 2019 10:20 am I know this is somewhat unrelated, but what are your thoughts between the Emerging Market Funds: VMMSX and VWO? VMMSX is actively managed, but has seemed to outperform VWO.

Thanks again.
The managers of VMMSX have made some good calls, but I'm reluctant to pay 92 bp for VMMSX when I can get VEMAX (Vanguard EM Index Admiral) for 14 bp or FPADX (Fidelity EM Index) for 8 bp. And if I want to place a multifactor bet, EMGF (iShares EDGE Multifactor EM) is 45 bp. I don't have the faith that they can make more than 78 bp or 84 bp per year of good calls going forward. If the cost were cut in half, I'd consider it.

I can live with 45 bp for VEGBX for two reasons: 1) The index alternative, VWOB, is 32 bp, so cost of active management is only 13 bp. and 2) I am less convinced of the merits of indexing bond markets. I do not believe bond markets are quite as efficient as equities markets, and market-cap weighting for bonds seems particularly ill-conceived, particularly for non-investment grade bonds.
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: Emerging Market Bond Fund Choice

Post by DB2 »

I notice the Fidelity FPADX fund has about 5% less reliance on China (compared to Vanguard VWO etf) for its #1 holding and South Korea is its #2 holding....which is not even on Vanguard's top 10.

https://advisors.vanguard.com/web/c1/fa ... oducts/VWO

https://fundresearch.fidelity.com/mutua ... /316146331

For what it's worth, Morningstar gives the Fidelity a 4 star where as Vanguard gets a 3 star.
fennewaldaj
Posts: 1097
Joined: Sun Oct 22, 2017 11:30 pm

Re: Emerging Market Bond Fund Choice

Post by fennewaldaj »

DB2 wrote: Mon Feb 04, 2019 11:19 pm I notice the Fidelity FPADX fund has about 5% less reliance on China (compared to Vanguard VWO etf) for its #1 holding and South Korea is its #2 holding....which is not even on Vanguard's top 10.
This is because Vanguard uses FTSE indexes which consider Korea a developed market while Fidelity uses MCSI which dose not. Which one is preferable depends on which developed market fund you use(unless you wanted to either over or underweight Korea for some reason)
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: Emerging Market Bond Fund Choice

Post by DB2 »

Do you see any tax advantage either way with Fidelity or Vanguard VWO? I might get both for a little diversification.
User avatar
jhfenton
Posts: 4754
Joined: Sat Feb 07, 2015 10:17 am
Location: Ohio

Re: Emerging Market Bond Fund Choice

Post by jhfenton »

DB2 wrote: Tue Feb 05, 2019 1:28 pm Do you see any tax advantage either way with Fidelity or Vanguard VWO? I might get both for a little diversification.
In taxable, I would stick with VWO at 12 bp (per the recent annual report), IEMG (iShares Emerging Markets) at 14 bp, or SCHE (Schwab EM) at 13 bp. IEMG is commission-free at Fidelity. SCHE is commission-free at Schwab. All three are commission-free at Vanguard.'The tax advantage and portability of the ETF wrapper would justify the extra headline expense compared to FPADX (Fidelity EM) at 8 bp. SPEM (SPDR Portfolio EM ETF) at 11 bp is also good. SPEM is commission-free at TD Ameritrade and Vanguard.

IEMG and FPADX follow an MSCI index that considers South Korea to be an emerging market. VWO and SCHE follow FTSE indices that classify South Korea as developed. South Korea is included in Vanguard's developed market index fund (VEA/VTMGX). SPEM follows an S&P index that classifies South Korea as developed.

I personally own FPADX in my HSA at Fidelity. I own VEMAX/VWO at Vanguard (VEMAX in our retirement accounts, a bit of VWO in taxable). I also own some EMGF (iShares Multifactor EM ETF). At the moment, VEMAX/VWO is 8.22% of equity, FPADX is 6.80%, and EMGF is 6.09%.

I own the EMGF for diversification and a factor tilt. I own both the Vanguard and Fidelity funds because I have most of our assets at Vanguard, but my HSA at Fidelity. I wouldn't go out of my way to own both the Vanguard and Fidelity funds.
DB2
Posts: 1396
Joined: Thu Jan 17, 2019 9:07 pm

Re: Emerging Market Bond Fund Choice

Post by DB2 »

Thanks!
Post Reply