Vanguard ETF EDV

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
DEZ1
Posts: 85
Joined: Fri Jul 10, 2015 2:00 pm

Vanguard ETF EDV

Post by DEZ1 » Thu Nov 14, 2019 11:05 pm

Why is this fund up 37% this year? Other long term bond funds are only 25%

User avatar
mrspock
Posts: 528
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

Re: Vanguard ETF EDV

Post by mrspock » Thu Nov 14, 2019 11:09 pm

E == extended duration . Longer term == bigger term risk == bigger gains when interest rates drop.

Compare the average durations of the ETFs, you’ll likely find this fund has a higher average duration.

averagedude
Posts: 760
Joined: Sun May 13, 2018 3:41 pm

Re: Vanguard ETF EDV

Post by averagedude » Thu Nov 14, 2019 11:16 pm

EDV has a duration of 24 years compared with 15 years that other long term bonds has. A fund like this carries higher interest rate risk. I may have this wrong, but a bond fund that has a duration of 15 years will increase 15 percent on a decrease of 100 basis points in interest rates. A bond fund that has a 24 year duration will increase 24 percent on a 100 basis point decrease.

Topic Author
DEZ1
Posts: 85
Joined: Fri Jul 10, 2015 2:00 pm

Re: Vanguard ETF EDV

Post by DEZ1 » Thu Nov 14, 2019 11:21 pm

Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?

User avatar
JoMoney
Posts: 7785
Joined: Tue Jul 23, 2013 5:31 am

Re: Vanguard ETF EDV

Post by JoMoney » Thu Nov 14, 2019 11:26 pm

DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
It depends what it is you expect from your bond portfolio, but I would call this a poor choice for a bond fund desired for safety and security of principal.
It's more volatile than most stock funds, Vanguard rates it a 5 on "Risk Potential" (higher than Total Stock Market fund), and gives explicit cautionary messages like:
Vanguard wrote: The fund is primarily intended for institutional investors with extremely long-term liabilities—20 years or more. Prospective individual investors are urged to consult with their own advisors to determine if the fund is suitable for their overall investment programs and financial positions.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

HEDGEFUNDIE
Posts: 3649
Joined: Sun Oct 22, 2017 2:06 pm

Re: Vanguard ETF EDV

Post by HEDGEFUNDIE » Thu Nov 14, 2019 11:43 pm

DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
EDV is my only bond holding.

anon_investor
Posts: 578
Joined: Mon Jun 03, 2019 1:43 pm

Re: Vanguard ETF EDV

Post by anon_investor » Thu Nov 14, 2019 11:49 pm

HEDGEFUNDIE wrote:
Thu Nov 14, 2019 11:43 pm
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
EDV is my only bond holding.
I assume you hold it due to its negative correlation to stocks? (Except for this year???) Do you hold it all in tax protect account or any in your taxable?

averagedude
Posts: 760
Joined: Sun May 13, 2018 3:41 pm

Re: Vanguard ETF EDV

Post by averagedude » Fri Nov 15, 2019 12:06 am

HEDGEFUNDIE wrote:
Thu Nov 14, 2019 11:43 pm
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
EDV is my only bond holding.
HEDGEFUNDIE is ten times smarter than me and is quite popular on this forum, but I would advise you not to do this. Having this fund as part of your bond holding is reasonable, but it shouldn't be your only bond holding especially if you are in the decumulation phase of investing. An investor should always ask themselves what their purpose is for holding bonds. Me personally it is for safety and I am in the camp of taking my risk on the equity side. This may sound like market timing, but with the 30 year treasury yielding 2.2%, don't you think it is risky to buy long term bonds right now? One difference between the stock and bond markets is that bear markets in stocks usually last several years, while bear markets in bonds usually last several decades. I will concede that if you are in the accumulation phase and you have an 80/20 or higher asset allocation, it isn't unreasonable to have all of your money in this fund.

HEDGEFUNDIE
Posts: 3649
Joined: Sun Oct 22, 2017 2:06 pm

Re: Vanguard ETF EDV

Post by HEDGEFUNDIE » Fri Nov 15, 2019 12:16 am

averagedude wrote:
Fri Nov 15, 2019 12:06 am
HEDGEFUNDIE wrote:
Thu Nov 14, 2019 11:43 pm
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
EDV is my only bond holding.
HEDGEFUNDIE is ten times smarter than me and is quite popular on this forum, but I would advise you not to do this. Having this fund as part of your bond holding is reasonable, but it shouldn't be your only bond holding especially if you are in the decumulation phase of investing. An investor should always ask themselves what their purpose is for holding bonds. Me personally it is for safety and I am in the camp of taking my risk on the equity side. This may sound like market timing, but with the 30 year treasury yielding 2.2%, don't you think it is risky to buy long term bonds right now? One difference between the stock and bond markets is that bear markets in stocks usually last several years, while bear markets in bonds usually last several decades.I will concede that if you are in the accumulation phase and you have an 80/20 or higher asset allocation, it isn't unreasonable to have all of your money in this fund.
You are smarter than you give yourself credit for.

HEDGEFUNDIE
Posts: 3649
Joined: Sun Oct 22, 2017 2:06 pm

Re: Vanguard ETF EDV

Post by HEDGEFUNDIE » Fri Nov 15, 2019 12:23 am

anon_investor wrote:
Thu Nov 14, 2019 11:49 pm
HEDGEFUNDIE wrote:
Thu Nov 14, 2019 11:43 pm
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
EDV is my only bond holding.
I assume you hold it due to its negative correlation to stocks? (Except for this year???) Do you hold it all in tax protect account or any in your taxable?
I hold it for negative correlation to stock crashes. Which worked out as planned last December.

rossington
Posts: 312
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Vanguard ETF EDV

Post by rossington » Fri Nov 15, 2019 4:42 am

HEDGEFUNDIE wrote:
Fri Nov 15, 2019 12:23 am
anon_investor wrote:
Thu Nov 14, 2019 11:49 pm
HEDGEFUNDIE wrote:
Thu Nov 14, 2019 11:43 pm
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
EDV is my only bond holding.
I assume you hold it due to its negative correlation to stocks? (Except for this year???) Do you hold it all in tax protect account or any in your taxable?
I hold it for negative correlation to stock crashes. Which worked out as planned last December.
Did it completely offset your stock declines last year? What stock positions were you in? Still the same positions now?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

Lee_WSP
Posts: 1208
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Vanguard ETF EDV

Post by Lee_WSP » Fri Nov 15, 2019 9:01 am

rossington wrote:
Fri Nov 15, 2019 4:42 am
HEDGEFUNDIE wrote:
Fri Nov 15, 2019 12:23 am
anon_investor wrote:
Thu Nov 14, 2019 11:49 pm
HEDGEFUNDIE wrote:
Thu Nov 14, 2019 11:43 pm
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
EDV is my only bond holding.
I assume you hold it due to its negative correlation to stocks? (Except for this year???) Do you hold it all in tax protect account or any in your taxable?
I hold it for negative correlation to stock crashes. Which worked out as planned last December.
Did it completely offset your stock declines last year? What stock positions were you in? Still the same positions now?
Uhmmm, we're only in total market index funds. This is Bogleheads, not Reddit. Only two options are total US and Global-ex-US (but only up to 20%).
HEDGEFUNDIE wrote:
Fri Nov 15, 2019 12:23 am
anon_investor wrote:
Thu Nov 14, 2019 11:49 pm
HEDGEFUNDIE wrote:
Thu Nov 14, 2019 11:43 pm
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
EDV is my only bond holding.
I assume you hold it due to its negative correlation to stocks? (Except for this year???) Do you hold it all in tax protect account or any in your taxable?
I hold it for negative correlation to stock crashes. Which worked out as planned last December.
Not before plunging like a Peregrine Falcon after a dove in August. :beer

I kid. I kid. :beer

dbr
Posts: 30798
Joined: Sun Mar 04, 2007 9:50 am

Re: Vanguard ETF EDV

Post by dbr » Fri Nov 15, 2019 9:13 am

DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
It is definitely a bond holding. Most people would not want this much volatility in a bond holding. A reason a person might do this is that the the most efficient portfolio when holding a high stock allocation is one using long bonds for the bond allocation. How large a benefit that is or who cares is a different discussion.

One should certainly not go out and buy something like that just by observing a short term windfall in holding that asset.

lazyday
Posts: 3581
Joined: Wed Mar 14, 2007 10:27 pm

Re: Vanguard ETF EDV

Post by lazyday » Fri Nov 15, 2019 9:15 am

Lee_WSP wrote:
Fri Nov 15, 2019 9:01 am
This is Bogleheads, not Reddit.
There's a difference?

columbia
Posts: 1983
Joined: Tue Aug 27, 2013 5:30 am

Re: Vanguard ETF EDV

Post by columbia » Fri Nov 15, 2019 9:17 am

JoMoney wrote:
Thu Nov 14, 2019 11:26 pm
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
It depends what it is you expect from your bond portfolio, but I would call this a poor choice for a bond fund desired for safety and security of principal.
It's more volatile than most stock funds, Vanguard rates it a 5 on "Risk Potential" (higher than Total Stock Market fund), and gives explicit cautionary messages like:
Vanguard wrote: The fund is primarily intended for institutional investors with extremely long-term liabilities—20 years or more. Prospective individual investors are urged to consult with their own advisors to determine if the fund is suitable for their overall investment programs and financial positions.

As they say, this Vanguard warning is not for nothing.

retiringwhen
Posts: 1436
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Vanguard ETF EDV

Post by retiringwhen » Fri Nov 15, 2019 9:24 am

dbr wrote:
Fri Nov 15, 2019 9:13 am
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
It is definitely a bond holding. Most people would not want this much volatility in a bond holding. A reason a person might do this is that the the most efficient portfolio when holding a high stock allocation is one using long bonds for the bond allocation. How large a benefit that is or who cares is a different discussion.

One should certainly not go out and buy something like that just by observing a short term windfall in holding that asset.
Another reason is to extend the overall duration of a portfolios bond holdings.

I am considering a small percentage holding of EDV in my portfolio to extend duration out a bit longer than provided by the standard total market index funds (BND, BIV, etc.) and muni bond funds.

This can also be part of a barbell approach with a more significant portion in EDV for the stock anti-correlation (aka negative or nearly negative most of the time) balanced with an appropriate portion in short-term treasuries or other favorite bond fund, thus causing a balancing effect allowing for safety in the short-term fund for near-term needs and rebalancing and the diversification effect of the extended treasuries.

The struggle I have with the barbell is that is implies a need to have a different rebalancing strategy than the usual rebalance bands around a 60/40 (or whatever) AA. I have not yet gotten my head around that yet.

User avatar
JoMoney
Posts: 7785
Joined: Tue Jul 23, 2013 5:31 am

Re: Vanguard ETF EDV

Post by JoMoney » Fri Nov 15, 2019 9:29 am

If you were to build a bond ladder portfolio with money maturing every year for full return of principal + interest, you would have to build the ladder out 50 years for the portfolio to have a similar duration as EDV.
With that said, if you wanted to build a bond portfolio using bond funds that simulated such a ladder, and were targeting dates far out into the future, you might need something like EDV as a component mixed in with other shorter duration bond funds to get the overall portfolios duration up to your target duration.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
nisiprius
Advisory Board
Posts: 39439
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Vanguard ETF EDV

Post by nisiprius » Fri Nov 15, 2019 10:07 am

DEZ1, a number of posters in Bogleheads have been advocating portfolios that include EDV as part of a strategy. They have rationales, supported by backtesting, etc. which they can explain for themselves. It is important to note that the role of EDV in that strategy is a lot more sophisticated than just observing that "EDV has outperformed BLV."

If you are thinking about investing in EDV yourself, you should be aware of how Vanguard presents it. Vanguard offers a total of 18 bond ETFs. Vanguard assigns every one of its ETFs a broad "risk level" categorization. There are five categories, 1 through 5. They put all of their stock funds into categories 4 and 5. They put most of their bond funds into categories 1, 2, and 3. The Vanguard Long-Term Bond ETF, BLV, is in category 3.

The only bond product they offer with a risk level higher than 3 is EDV. They put EDV in category 5, the same level as their riskiest stock funds. These risk level categories are the way Vanguard chooses to present and characterize its own funds.

Image

Is EDV a bond fund? Yes.

How is its credit quality? 100% US government.

Is it a typical bond fund? No, it is not.

Is high risk a reason not to invest in something? No, but it is definitely something to be aware of. Be certain that you have looked into the nature of that risk and are satisfied that you understand it to your own satisfaction.
Last edited by nisiprius on Fri Nov 15, 2019 2:55 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

grog
Posts: 395
Joined: Sat Jul 20, 2013 1:09 pm

Re: Vanguard ETF EDV

Post by grog » Fri Nov 15, 2019 12:25 pm

A 30 year bond with a 3% coupon selling at par has a duration of "only" around 20 (this is because the coupons reduce the average timing of the cash flows). This fund is designed to extend the duration beyond what is possible with regular treasuries by using treasury STRIPS where they sell off the coupons and create a zero-coupon bond out of the maturity payment. For zero coupon bonds the duration is essentially just the maturity (since there's only one payment), so this fund ends up with a duration in the 24-25 range. Again, this is even longer than a fresh 30 yr treasury bond.

If yields drop 1%, you'd expect a 24 year zero to go up about 24% based on duration (which is a linear approximation). In practice because of non-linearity (convexity) it would actually go up a little bit more than that (maybe round 27%).

rossington
Posts: 312
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Vanguard ETF EDV

Post by rossington » Fri Nov 15, 2019 2:06 pm

Lee_WSP wrote:
Fri Nov 15, 2019 9:01 am
rossington wrote:
Fri Nov 15, 2019 4:42 am
HEDGEFUNDIE wrote:
Fri Nov 15, 2019 12:23 am
anon_investor wrote:
Thu Nov 14, 2019 11:49 pm
HEDGEFUNDIE wrote:
Thu Nov 14, 2019 11:43 pm


EDV is my only bond holding.
I assume you hold it due to its negative correlation to stocks? (Except for this year???) Do you hold it all in tax protect account or any in your taxable?
I hold it for negative correlation to stock crashes. Which worked out as planned last December.
Did it completely offset your stock declines last year? What stock positions were you in? Still the same positions now?
Uhmmm, we're only in total market index funds. This is Bogleheads, not Reddit. Only two options are total US and Global-ex-US (but only up to 20%).
Sorry I don't understand your comment. Care to explain what you meant?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

Gemini
Posts: 979
Joined: Sun May 20, 2012 8:10 am

Re: Vanguard ETF EDV

Post by Gemini » Fri Nov 15, 2019 2:46 pm

HEDGEFUNDIE wrote:
Thu Nov 14, 2019 11:43 pm
DEZ1 wrote:
Thu Nov 14, 2019 11:21 pm
Yes I do see that they have a duration of 24 years. Thanks. Would this be considered part of a bond portion of a portfolio or is it too volatile for that?
EDV is my only bond holding.
What is your allocation in general outside of the excellent adventure holdings?

caklim00
Posts: 1936
Joined: Mon May 26, 2008 10:09 am

Re: Vanguard ETF EDV

Post by caklim00 » Fri Nov 15, 2019 3:49 pm

I only think EDV makes sense for a parity like approach. I think if you are going to use taxable though Ultrabond futures is probably the smarter route to go. I hold EDV in my hedgefundie side bet. All other bonds are focused more on intermediate or total bond.

Topic Author
DEZ1
Posts: 85
Joined: Fri Jul 10, 2015 2:00 pm

Re: Vanguard ETF EDV

Post by DEZ1 » Sat Nov 16, 2019 11:21 pm

grog wrote:
Fri Nov 15, 2019 12:25 pm
A 30 year bond with a 3% coupon selling at par has a duration of "only" around 20 (this is because the coupons reduce the average timing of the cash flows). This fund is designed to extend the duration beyond what is possible with regular treasuries by using treasury STRIPS where they sell off the coupons and create a zero-coupon bond out of the maturity payment. For zero coupon bonds the duration is essentially just the maturity (since there's only one payment), so this fund ends up with a duration in the 24-25 range. Again, this is even longer than a fresh 30 yr treasury bond.

If yields drop 1%, you'd expect a 24 year zero to go up about 24% based on duration (which is a linear approximation). In practice because of non-linearity (convexity) it would actually go up a little bit more than that (maybe round 27%).
Can you please explain why it only has a duration of 20 years if it is a 30 year bond. Also what is a Strip?

HawkeyePierce
Posts: 729
Joined: Tue Mar 05, 2019 10:29 pm
Location: Colorado

Re: Vanguard ETF EDV

Post by HawkeyePierce » Sun Nov 17, 2019 12:05 am

DEZ1 wrote:
Sat Nov 16, 2019 11:21 pm
grog wrote:
Fri Nov 15, 2019 12:25 pm
A 30 year bond with a 3% coupon selling at par has a duration of "only" around 20 (this is because the coupons reduce the average timing of the cash flows). This fund is designed to extend the duration beyond what is possible with regular treasuries by using treasury STRIPS where they sell off the coupons and create a zero-coupon bond out of the maturity payment. For zero coupon bonds the duration is essentially just the maturity (since there's only one payment), so this fund ends up with a duration in the 24-25 range. Again, this is even longer than a fresh 30 yr treasury bond.

If yields drop 1%, you'd expect a 24 year zero to go up about 24% based on duration (which is a linear approximation). In practice because of non-linearity (convexity) it would actually go up a little bit more than that (maybe round 27%).
Can you please explain why it only has a duration of 20 years if it is a 30 year bond. Also what is a Strip?
A Treasury STRIP is a Treasury bond that has been "stripped" of its coupon payments. That is, this bond does not pay interest as you hold it. Instead it is sold at a significant discount and then redeems at par.

stlutz
Posts: 5465
Joined: Fri Jan 02, 2009 1:08 am

Re: Vanguard ETF EDV

Post by stlutz » Sun Nov 17, 2019 12:26 am

DEZ1 wrote:
Sat Nov 16, 2019 11:21 pm
Can you please explain why it only has a duration of 20 years if it is a 30 year bond. Also what is a Strip?
The most intuitive understanding of duration is that it is the average amount of time until cash flows from the bond are received (interest and principal). So, a 30 year bond will pay you the principal in 30 years, but it pays interest every six months. All of the money that gets paid from the bond, on average, is paid 20 years from now.

A zero-coupon bond (which a STRIP is), pays all principal and interest at maturity. So, the duration = maturity in that case.

Post Reply