VBTLX versus NUVEEN managed Muni Bonds

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DieterReuther
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VBTLX versus NUVEEN managed Muni Bonds

Post by DieterReuther » Fri Jan 12, 2018 5:21 pm

Hello fellow Bogleheads,

I am working on converting our investments into a 3-fund portfolio consisting of VTSAX, VTIAX, and VBTLX. The bond part of the portfolio is currently at 56% with 12% in VBTLX in a tax-deferred account and 44% in NUVEEN managed muni bonds in a taxable account. The NUVEEN managed account currently holds 30 different muni bonds.

My goal is to bring the bond part down from 56% to 45%. The NUVEEN investment has historic reasons and I am struggling whether to keep this investment or completely converting to VBTLX.

I am interested in learning what advantages/disadvantages you see in keeping the NUVEEN muni bond investment.

We live in NH and don't pay any state tax.

Thank you for your guidance,
Dieter

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in_reality
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by in_reality » Sat Jan 13, 2018 12:24 am

What are your costs for NUVEEN?

What is your tax bracket and cost of holding taxable bonds?

Are you using any NUVEEN features such as selecting a laddered portfolio or limiting duration or selecting credit risk?

Have they been doing tax loss harvesting?

Do you or would you want to donate individual holdings?

You seem to have no need to use state specific funds, so I guess that is out.

You might look at a thread on the opposite -- going from VBTLX to a muni fund.
viewtopic.php?f=1&t=218208

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dratkinson
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by dratkinson » Sat Jan 13, 2018 1:46 am

It is our due diligence requirement to make an informed decision.

I read a Nuveen prospectus while researching muni funds. Scariest thing I've ever read.

Of course I would never have known how bad it was if I hadn't first read two of the bond books recommended by the Wiki.

Why read two bond books? Where recommended author agree, that is the central route. Where they disagree, those are alternate routes. More due diligence is required if you go an alternate route.

Suggestion. Search Wiki for recommended "books" (search term). Read two recommended bond books. Then (re)read your Nuveen prospectus, and the prospectus of any fund you are considering to replace it.

It is your due diligence requirement to come up to speed on bond basics and make an informed decision. And what you need to know would fill a book(s). Lucky for us, those books have been written.
Last edited by dratkinson on Sat Jan 13, 2018 5:59 pm, edited 1 time in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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in_reality
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by in_reality » Sat Jan 13, 2018 3:18 am

dratkinson wrote:
Sat Jan 13, 2018 1:46 am
It is our due diligence requirement to make an informed decision.

I read a Nuveen prospectus while researching muni funds. Scariest thing I've ever read.
Was that a leveraged CEF? What was so scary? Yeah I mean you have to know the leverage influenced duration and be prepared for NAV fluctuation, and IPOs are often not advantageous but why are they scary?

Anyway, the NUVEEN managed accounts don't use leverage do they? You really should know if they do!!!!

https://www.nuveen.com/Home/ManagedAccount/Default.aspx
https://www.nuveen.com/Home/Documents/D ... leId=54202

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dratkinson
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by dratkinson » Sat Jan 13, 2018 5:41 pm

Had to go back and refresh my memory.

The Nuveen fund was FCOTX. The ER was okay. But the prospectus promised...
--sales load,
--exposure to AMT issues “without limit”,
--up to 20% junk bond exposure,
--use of leverage.
See: http://www.rightprospectus.com/document ... State1.pdf

I was in 25% fed tax bracket at the time and believed I would be exposed to AMT in coming years. The fund's yield was not high enough to survive a 28% haircut (assuming 100% "without limit" AMT exposure).

So: load + AMT + junk bonds + leverage---scary.

The load is waived if we buy $250K. But since I didn't want "a little" of this fund, "a lot" was less appealing.

We are told to "plan for the worst, hope for the best", but the prospectus left no room for hope. So since the recommended bond books say we can do better, I decided to pass on the Nuveen fund.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

DieterReuther
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by DieterReuther » Wed Jan 17, 2018 3:49 pm

in_reality wrote:
Sat Jan 13, 2018 12:24 am
What are your costs for NUVEEN?

What is your tax bracket and cost of holding taxable bonds?

Are you using any NUVEEN features such as selecting a laddered portfolio or limiting duration or selecting credit risk?

Have they been doing tax loss harvesting?

Do you or would you want to donate individual holdings?

You seem to have no need to use state specific funds, so I guess that is out.

You might look at a thread on the opposite -- going from VBTLX to a muni fund.
viewtopic.php?f=1&t=218208
The muni bonds are held at Stifel and managed by Nuveen. The annual fee is 1% and the average yield is 4.09%. A result of 3.09% is not too bad. Am I missing something? Honestly, my knowledge of bonds is not very deep and I agree with dratkinson that I should educate myself better.

Not sure about any of the features you mentioned (laddered portfolio, tax loss harvesting, ...). The bonds do have various due dates from 2021 to 2031.

Our tax bracket is in flux as we are in a transition phase into semi-retirement.

We are currently not planning to donate any of the bonds.

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a_posteriori
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by a_posteriori » Wed Jan 17, 2018 4:33 pm

Ahhh, Nuveen. First mutual fund I ever bought--state specific muni. Yes, I really did pay a load didn't know at the time not to. This was back in the days when money markets were paying 6%. The money market rates were dropping fast so my bank recommended moving to Nuveen. The balance grew OK for about 10 years but the larger risk numbers, compared to other state specific muni funds, manifested with a larger down amplitude than I liked during the 2007/2008 events. Fund manager changed about this time too. This woke me up and I moved the entire lot to T. Rowe Price where my costs went down significantly and the risk numbers improved compared to the equivalent Nuveen fund. Unfortunately for me, Vanguard doesn't have my state specific fund in the lineup and I really want the double tax freeness.

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dratkinson
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by dratkinson » Wed Jan 17, 2018 9:05 pm

DieterReuther wrote:
Wed Jan 17, 2018 3:49 pm
...
The muni bonds are held at Stifel and managed by Nuveen. The annual fee is 1% and the average yield is 4.09%. A result of 3.09% is not too bad. ...
1. The 1% fee (Stifel?) is taking 25% of your average yield. You can do better.

2. Compare only SEC yields, not any other types of yield, as that is supposed to be truer comparison of what we can expect going forward.



Gallows humor: Slightly different spelling, same concept:

sti·fle /stīf'l/

verb (used with object), stifled, stifling.
1. to quell, crush, or end by force: to stifle a revolt; to stifle free expression.
2. to suppress, curb, or withhold: to stifle a yawn.
3. to kill by impeding respiration; smother.

verb (used without object), stifled, stifling.
4. to suffer from difficulty in breathing, as in a close atmosphere.
5. to become stifled or suffocated.

See stifle: http://www.dictionary.com/browse/stifle

See gallows humor: https://en.wikipedia.org/wiki/Gallows_humor



Read the recommend bond books to come up to speed on the bonds/funds to avoid, and the universe of acceptable bonds from which to choose. Then post your whole financial situation and the forum will help you tailor all of your investments for retirement.

Second thought. Since the forum will help with all of your investments, suggest your read "The Bogleheads' Guide to Investing" so you'll understand where their advice is coming from that doesn't relate directly to your bond choices.



If you're within 5 years of retirement, you can add these to your reading list for later:
--"The Bogleheads' Guide to Retirement Planning"
--"How to Make Your Money Last: The Indispensable Retirement Guide" by Jane Bryant Quinn

Why two books. Same reason, different authors, different perspectives on the same topic.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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in_reality
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by in_reality » Wed Jan 17, 2018 9:12 pm

As mentioned, yield doesn’t mean return. If the bond is bought above par, your actual return will be less than the yield showing on the on bond.

1% is far to high for bonds. If they were selecting only a specific state which didn’t have a bond fond or managing by a a particular risk profile, then perhaps some fee would be worth it.

I don’t see much benefit beyond what a low cost fund offers though, so why pay the higher cost?

DieterReuther
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by DieterReuther » Fri Jan 19, 2018 3:15 pm

I am aware of the high cost (1%) of the Nuveen managed Muni bonds at Stifel. However, even with the 1% annual fee, the remaining 3.09% distribution is still higher than the VBTLX distribution of 2.52%. For the past year, our VBTLX return was -1.3%. What am I not seeing here?

Don't get me wrong - I am a fan of Vanguard and a 3 fund portfolio (VBSAX, VTIAX, VBTLX) is my goal. We didn't make the Stifel investment, instead, we inherited it.

onourway
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by onourway » Fri Jan 19, 2018 3:19 pm

DieterReuther wrote:
Fri Jan 19, 2018 3:15 pm
I am aware of the high cost (1%) of the Nuveen managed Muni bonds at Stifel. However, even with the 1% annual fee, the remaining 3.09% distribution is still higher than the VBTLX distribution of 2.52%. For the past year, our VBTLX return was -1.3%. What am I not seeing here?

Don't get me wrong - I am a fan of Vanguard and a 3 fund portfolio (VBSAX, VTIAX, VBTLX) is my goal. We didn't make the Stifel investment, instead, we inherited it.
How do you get -1.3% return for VBTLX last year? Total return for 2017 was 3.57%.

DieterReuther
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Re: VBTLX versus NUVEEN managed Muni Bonds

Post by DieterReuther » Sat Jan 20, 2018 10:08 am

The -1.3% is what Vanguard gives me as "Rate of return" under "Balances and holdings" for our VBTLX holding for 2017. I know it is different from the distribution and includes significant market losses.

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