Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

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alluringreality
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Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by alluringreality » Tue Nov 12, 2019 12:26 pm

Does anyone have an opinion about buying bonds based on the JP Morgan Fixed Income Asset Allocation Portfolio? The mix has changed over the years to some extent, and the current percentages are listed below. I still keep coming back to considering a portfolio something similar to the following as I read more about bonds.

Q4 2019 guide to the markets:
- 20% MBS (I'd choose Ginnie Mae, like VFIIX)
- 20% Corporate (I'd buy short and interim for less than 4.5 year duration)
- 15% Municipals
- 5% Emerging Debt USD (I need to look into this a bit more to decide between active and passive)
- 5% Emerging Debt Local (I'm not finding funds that track the source listed, so I'd probably just add 5% to EM USD)
- 10% High Yield (I'd buy fallen angels)
- 20% Treasuries (I'd buy short and interim for less than 4.5 year duration)
- 5% Tips (I-Bonds make more sense for me as part of my cash, so I'd just add this 5% to another category)

Image
https://am.jpmorgan.com/us/en/asset-man ... he-markets

Q4 2011 guide to the markets:
- 10% MBS (10% less than current version)
- 20% Corporate
- 15% Municipals
- 10% Emerging Debt (Same as combined USD and Local from current version)
- 10% High Yield
- 25% Treasuries (5% more than current version)
- 10% Tips (5% more than current version)

Image

I have 25 years to retirement and currently have 3 years of expenses saved in online savings accounts and CDs. I figure I could put 2/3 of the money into bonds the next couple years when the CDs mature, which would leave me with a year of cash or I-Bonds. After 2008 it took about 3 years to get back to a similar place financially, so this is essentially my rainy day fund in an economic downturn. At times I think I should try putting some limited risk into the account for better returns than the past 8 years, yet I have no interest in putting this portion of my money into stocks. Mainly I've been looking at historical recovery times, and I'm probably okay with 1.5 years.
Last edited by alluringreality on Thu Nov 21, 2019 10:32 am, edited 10 times in total.

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JAZZISCOOL
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by JAZZISCOOL » Wed Nov 13, 2019 9:27 pm

JP Morgan has some excellent analytics but at its core is an active management shop (and is part of a large banking complex). They also own/developed a series of bond indices which is a revenue source (some emerging markets):

https://www.jpmorgan.com/country/US/EN/ ... es/product

IMO I believe their recommendations in this FI AA portfolio may be based on maximizing revenue generation vs. optimal bond allocation advice. Core intermediate bond allocations e.g. BND (ETF version) would probably be a very good bond allocation for many investors IMO. VBTLX is one mutual fund option.

Some of the specialty fixed income ETF's also have very high expense ratios and come with higher volatility (risks). In terms of TIPs closer to retirement and a small slice of muni bonds for some taxable investors in a small number of states might work but you're getting most of important exposures in BND etc., (IMO). Also, I think rebalancing this would be a pain to implement. :|

PS - If inclined, one can invest in JP Morgan's (active) core bond fund for 75 basis points; it is only rated 3 / 5 stars by Morningstar for all periods.

https://am.jpmorgan.com/us/en/asset-man ... erformance

The expense ratio for BND is 3.5 bp.

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alluringreality
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by alluringreality » Thu Nov 14, 2019 2:37 pm

Thanks for the reply. I was mainly looking for different perspectives.
JAZZISCOOL wrote:
Wed Nov 13, 2019 9:27 pm
IMO I believe their recommendations in this FI AA portfolio may be based on maximizing revenue generation vs. optimal bond allocation advice. Core intermediate bond allocations e.g. BND (ETF version) would probably be a very good bond allocation for many investors IMO. VBTLX is one mutual fund option.
I'd say it definitely has more downside risk than intermediate core bonds, or the Barclays Aggregate index from the charts, since it has far less Treasuries. I tend to think the idea is probably more in line with the Morningstar intermediate core-plus bond category. It looks like both the 2019 & 2011 combinations went through 2008 fine for my purposes.
PS - If inclined, one can invest in JP Morgan's (active) core bond fund for 75 basis points; it is only rated 3 / 5 stars by Morningstar for all periods.

https://am.jpmorgan.com/us/en/asset-man ... erformance
Realistically I would have sold intermediate core bonds if I owned them in the years leading up through 2018, and I would have done the same with this fund. What I'm looking for is an allocation that will have some chance of having enough returns over those sorts of years that I wouldn't sell and miss out on a year like 2019. While I'm not expecting the idea to outperform Corporates with less volatility than Treasuries, as shown on the 2019 image, the combinations that I backtested did tend to outperform and result in higher ratios than intermediate core bonds and the Universal index (IUSB) over available periods. Basically I'd be intentionally choosing some more downside risk to avoid selling during times when the Barclays Aggregate or Universal doesn't perform very well, like 2015-2018.
Last edited by alluringreality on Fri Nov 15, 2019 2:53 pm, edited 1 time in total.

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jeffyscott
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by jeffyscott » Thu Nov 14, 2019 5:28 pm

JAZZISCOOL wrote:
Wed Nov 13, 2019 9:27 pm
PS - If inclined, one can invest in JP Morgan's (active) core bond fund for 75 basis points; it is only rated 3 / 5 stars by Morningstar for all periods.
If you want to hire JP Morgan to manage your bonds, for a bit less there is JP Morgan Income Fund Class I (JMSIX). Current net ER 0.4% (gross is 0.79% and I have no idea when the waiver ends). While it is an institutional funds, at least some brokerages provide entry with a minimum as low as $100.

It is a multi-sector bond fund, without taking the time to do a comparison with the "JP Morgan Fixed Income Asset Allocation Portfolio", I would guess that it is somewhat closer that portfolio than the core bond fund would be.
Time is your friend; impulse is your enemy. - John C. Bogle

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JAZZISCOOL
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by JAZZISCOOL » Thu Nov 14, 2019 6:25 pm

jeffyscott wrote:
Thu Nov 14, 2019 5:28 pm
JAZZISCOOL wrote:
Wed Nov 13, 2019 9:27 pm
PS - If inclined, one can invest in JP Morgan's (active) core bond fund for 75 basis points; it is only rated 3 / 5 stars by Morningstar for all periods.
If you want to hire JP Morgan to manage your bonds, for a bit less there is JP Morgan Income Fund Class I (JMSIX). Current net ER 0.4% (gross is 0.79% and I have no idea when the waiver ends). While it is an institutional funds, at least some brokerages provide entry with a minimum as low as $100.

It is a multi-sector bond fund, without taking the time to do a comparison with the "JP Morgan Fixed Income Asset Allocation Portfolio", I would guess that it is somewhat closer that portfolio than the core bond fund would be.
This doesn't look like an apples vs. apples comparison to BND, although you made a note that it was multi-sector. It appears to be more credit-oriented given the portfolio and index used is the BBgBarc US Credit Index on Schwab. So it has different risks but 4 stars from Mstar FWIW. :|

Corporate Bond
35.97%

Agency Mortgage-Backed
22.65%

Asset-Backed
17.42%

Cash & Equivalents
7.83%

Commercial Mortgage-Backed
6.57%

Government
4.20%

Non-Agency Residential Mortgage-Backed
2.77%

Bank Loan
1.42%

Government Related
0.55%

Convertible
0.55

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jeffyscott
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by jeffyscott » Thu Nov 14, 2019 6:37 pm

^I was suggesting comparing to the JP Morgan portfolio recommendations posted by the OP. The implication being, rather than trying to assemble all the pieces, you could perhaps get something similar by just buying their fund.
Time is your friend; impulse is your enemy. - John C. Bogle

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alluringreality
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by alluringreality » Thu Nov 14, 2019 7:02 pm

jeffyscott wrote:
Thu Nov 14, 2019 6:37 pm
^I was suggesting comparing to the JP Morgan portfolio recommendations posted by the OP. The implication being, rather than trying to assemble all the pieces, you could perhaps get something similar by just buying their fund.
Thank you for the information. I wasn't aware that Multisector Bond was even a category, and I wouldn't have been aware that it might be possible to buy for less than the minimum. It doesn't look like a direct comparison, but it's certainly something I hadn't considered.

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alluringreality
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by alluringreality » Tue Nov 19, 2019 2:02 pm

Any opinions on one of these similar bond portfolios in the 12% tax bracket?

Current plan:
- 20% MBS (Ginnie Mae)
- 20% Corporate (target lower duration than Total Bond)
- 20% Treasuries (target lower duration than Total Bond)
- 5% Core compliments (undecided - might put in above categories)
- 15% Municipals
- 10% Emerging Debt (might go into IRA)
- 10% High Yield (fallen angels - might go into IRA)

Simplified option:
- 60% Total bond (longer duration with some additional MBS/ABS risk)
- 5% Core compliments (undecided - might put in total bond)
- 15% Municipals
- 10% Emerging Debt (might go into IRA)
- 10% High Yield (fallen angels - might go into IRA)

Since both replies mentioned JP Morgan fund options, I decided to look at more of their materials. There are some aspects of the pyramid they use for marketing that I don't find readily apparent for implementing using lower-cost funds from various companies. The range of options they offer for the pyramid appears to expand beyond the core-plus type of risk that I've been targeting, so I'm sticking to limiting what they call "Extended sectors" to 20% of the portfolio for various reasons, although some of their products don't seem to contain as much risk so a larger percentage might be comparable. The main item I found possibly useful was how they group "Core complements - Absolute return, inflation hedge, ultra-short" into one slice of the pyramid. It seems Ultra-short duration did better than Treasuries in the 2015-2018 period that I find most concerning for core bonds or the Aggregate index. I'm thinking that Ultra-short duration might be a decent idea to counterbalance some of the duration I'm not extremely excited to buy with the Invesco Taxable Municipal Bond ETF (BAB), and it looks like JPMorgan Ultra-Short Income ETF (JPST) might be one of the better options for my purpose. The portfolios seem to backtest close enough to the Baird Core Plus Bond Fund Class Institutional (BCOIX), and they seem to have had less stock correlation than the Dodge & Cox Income Fund (DODIX). I'm not sure I want a Baird account when looking at their fees, and paying per transaction also does not interest me, so I'm basically deciding if I open a Dodge & Cox account or go with one of these portfolios.

Image
Last edited by alluringreality on Sun Nov 24, 2019 1:10 pm, edited 7 times in total.

not4me
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by not4me » Tue Nov 19, 2019 4:27 pm

alluringreality wrote:
Tue Nov 12, 2019 12:26 pm


I have 25 years to retirement and currently have 3 years of expenses saved in online savings accounts and CDs. I figure I could put 2/3 of the money into bonds the next couple years when the CDs mature, which would leave me with a year of cash or I-Bonds. After 2008 it took about 3 years to get back to a similar place financially, so this is essentially my rainy day fund in an economic downturn. At times I think I should try putting some limited risk into the account for better returns than the past 8 years, yet I have no interest in putting this portion of my money into stocks. Mainly I've been looking at historical recovery times, and I'm probably okay with 1.5 years.
A few comments on various parts of your OP & most recent post. I understand the concern about historical recovery; that said, your approach is quite different than what I would do. You are heavily reliant on backtesting -- which works well IF the upcoming years mirror the years you've focused on. You haven't mentioned risk type measurements such as standard deviation, sharpe ratio, etc as much -- especially in your basis for portfolio construction. For example, you mentioned stock correlation, but not (or if you did I overlooked -- always possible!) the max drawdown for bad years.

So, I think the success of this approach will be dependent on: 1) how closely upcoming years mirror the backtested years; 2) how much time/effort are you willing to maintain this (watching for things such as an uptick in inflation, etc). Are you planning on keeping this static until retirement in 25 years? Glide path in mind?

Almost as an aside, I'd be curious as to why you chose Build America bonds for taxable. That program has ended & so as those bonds "go away" I would expect the market for them to act a bit odd. You didn't seem to focus much on expense ratios, after tax returns, etc. Even if you aren't in a state with state income tax, why rule out municipals?

Good luck -- you do seem to be thinking this thru

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alluringreality
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by alluringreality » Tue Nov 19, 2019 7:11 pm

not4me wrote:
Tue Nov 19, 2019 4:27 pm
You are heavily reliant on backtesting -- which works well IF the upcoming years mirror the years you've focused on.
This is fair. Mainly I was trying to figure out how the idea has been printed for years, yet I couldn't find discussion around it.
You haven't mentioned risk type measurements such as standard deviation, sharpe ratio, etc as much -- especially in your basis for portfolio construction. For example, you mentioned stock correlation, but not (or if you did I overlooked -- always possible!) the max drawdown for bad years.
Drawdown over 15% would catch my attention. In theory I'd plan to ride it for over a year and see what happens. Standard deviation and sharpe ratios seem to vary to some extent depending on the time period, so I'm not entirely sure how much good they might be for making buying decisions. Mainly I was looking at past returns over different periods and seeing how volitility differed.
So, I think the success of this approach will be dependent on: 1) how closely upcoming years mirror the backtested years; 2) how much time/effort are you willing to maintain this (watching for things such as an uptick in inflation, etc). Are you planning on keeping this static until retirement in 25 years?
I'm mainly intending this as a static buy and hold. At least part of the account will be in taxable, so I could always tax loss and tax gain harvest with the multiple funds. The only change I planned to make is if their allocation changes over time, similar to how there are some differences between the 2019 and 2011 allocations.
Glide path in mind?
I put a bond allocation target in my retirement account that ends up at 60% stock and 40% bonds over time, but I'm not sure how closely I'll attempt to follow it. I bought EE bonds in 2019 for various reasons. If I keep buying EE bonds and stock exceeds 3.5% average returns, the retirement account would never get to 40% bonds on the current plan, so mixing part of this money in an IRA probably wouldn't hurt.
Almost as an aside, I'd be curious as to why you chose Build America bonds for taxable. That program has ended & so as those bonds "go away" I would expect the market for them to act a bit odd. You didn't seem to focus much on expense ratios, after tax returns, etc. Even if you aren't in a state with state income tax, why rule out municipals?
The prospectus indicates it follows the ICE BofAML US Taxable Municipal Securities Plus Index, which seems to have access to other parts of taxable municipals. After some further looking, it seems that BAB probably has more risk than I realized. I'm not sure what I'll do with the 5% Tips allocation, but I'll probably not use all taxable municipals, since that's probably more risk than I was really targeting. I'll likely use at least a portion of something tax-exempt like MUB, although a mix might be something I'd consider. Anyway, thanks for taking a look.

https://www.portfoliovisualizer.com/bac ... tion3_3=75

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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by not4me » Thu Nov 21, 2019 7:33 pm

alluringreality wrote:
Tue Nov 19, 2019 7:11 pm
Standard deviation and sharpe ratios seem to vary to some extent depending on the time period, so I'm not entirely sure how much good they might be for making buying decisions. Mainly I was looking at past returns over different periods and seeing how volitility differed.



I'm mainly intending this as a static buy and hold. At least part of the account will be in taxable, so I could always tax loss and tax gain harvest with the multiple funds. The only change I planned to make is if their allocation changes over time, similar to how there are some differences between the 2019 and 2011 allocations.

We may be talking past each other. When I mentioned about standard deviation, etc, I was talking about paying attention to volatility. So, yea, if you are looking at it with different measurements than I mentioned, we're along the same line of thought. I'd be curious if you care to elaborate what you do use.

And yes, std dev, Sharpe, et al will vary depending on time period -- & that is somewhat the point. You've focused on a certain time period & I agree the measurements of std dev, etc for that time period won't be static for next 25 years. Might be instructive to look into what this space looked like 24 years ago -- any changes since then?!? You did indicate you planned to monitor JPM's aa & will be willing to adjust....that is the maintaining I referred to....as yield curve steepens, inflation kicks up, & on & on

Good luck in your implementation

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alluringreality
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Re: Bond Sectors - JP Morgan Fixed Income Asset Allocation Portfolio?

Post by alluringreality » Fri Nov 22, 2019 2:07 pm

not4me wrote:
Thu Nov 21, 2019 7:33 pm
We may be talking past each other. When I mentioned about standard deviation, etc, I was talking about paying attention to volatility. So, yea, if you are looking at it with different measurements than I mentioned, we're along the same line of thought. I'd be curious if you care to elaborate what you do use.
I'll glance at the ratios to see if two funds are in a similar ballpark, but I'm willing to choose a lower ratio if I think one strategy has a chance of having a higher return over time, similar to how the first image shows both a higher return and volatility in comparison to the Aggregate index. I figure if this has a chance to beat total bond market (Aggregate index) or the Universal index (funds like IUSB or FBND) for return or volatility then it seems a reasonable bet. Recently I've been comparing against Baird Core Plus Bond Fund Class Institutional (BCOIX) and Dodge & Cox Income Fund (DODIX), since those appear most in line with my interests in the core plus category, and they seem more difficult to outperform over rolling 3 year periods with similar risk.

I have considered just buying either BCOIX or DODIX and being done with it. While I know in the grand scheme it doesn't really matter, I just don't like the idea of paying $20 or more to buy and sell either fund at outside brokers. The list of fees at Baird leaves me with a bunch of questions that I honestly don't care to answer, and I'd guess maybe part of the reason why Dodge & Cox has a higher expense ratio is because I can't find a fee list on their website like other companies. I'm not interested in other funds from either Baird or Dodge & Cox, so the only reason I've kept looking at this idea is because it would work at any brokerage with potentially a bit lower expenses.
And yes, std dev, Sharpe, et al will vary depending on time period -- & that is somewhat the point. You've focused on a certain time period & I agree the measurements of std dev, etc for that time period won't be static for next 25 years. Might be instructive to look into what this space looked like 24 years ago -- any changes since then?!? You did indicate you planned to monitor JPM's aa & will be willing to adjust....that is the maintaining I referred to....as yield curve steepens, inflation kicks up, & on & on
I have tried looking at older time periods, and some ideas do tend to break down across time. The main reason I started looking into bonds was in trying to figure out what a good plan might be in the current low rate environment. Historically the stock market in Japan scares me, so I decided to stop holding only US stock, and it's part of why I started considering bonds. Stagflation also scares me, but so far it doesn't scare me enough to hedge against it. I have considered using some cash to buy some I-Bonds, although I'd place inflation well behind stagflation and Japan on my list of considerations. Basically I just have some CDs that are going to mature, so I'm trying to figure out what a decent plan might be for 2020 and 2021. I figure if I go bonds, then it makes sense to plan on trying it for whatever duration I go with, probably over 5 years.
Good luck in your implementation
Thanks for the comments.

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