Thoughts on bond mutual funds: BBBIX and ADLIX

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octreotide
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Joined: Sat Sep 21, 2019 10:36 pm

Thoughts on bond mutual funds: BBBIX and ADLIX

Post by octreotide » Wed Jan 15, 2020 12:27 am

These are some bond holdings my old advisor had me in. Any idea in why I'd be in both instead of just one? I'm at fidelity so looking at their offerings I was looking at FXNAX to compare. Expense ratios are a couple basis points lower, dividends are a little higher, but show is the NAV making that ratio look actually than where I'm at with BBBIX, for example.

Community thoughts on staying put or repositioning into other bond selections?

What are the key criteria that's making you lean which ever direction you are?

brad.clarkston
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Location: Kansas City, MO

Re: Thoughts on bond mutual funds: BBBIX and ADLIX

Post by brad.clarkston » Wed Jan 15, 2020 12:42 am

octreotide wrote:
Wed Jan 15, 2020 12:27 am
These are some bond holdings my old advisor had me in. Any idea in why I'd be in both instead of just one? I'm at fidelity so looking at their offerings I was looking at FXNAX to compare. Expense ratios are a couple basis points lower, dividends are a little higher, but show is the NAV making that ratio look actually than where I'm at with BBBIX, for example.

Community thoughts on staying put or repositioning into other bond selections?

What are the key criteria that's making you lean which ever direction you are?
So it's not the worst bod fund out there but also not the best. It's ultrashort which I like but it's asset/corp bonds which I don't (more risk). I don't like the fee/load or the .27% ER on top of said fee/load. But it's also doing well as a fund which isn't bad.

Personally if it was me I'd want to switch it over to FXNAX for no load and and the .025% ER. Plus FXNAX has trended better over the last 10 years. It just depends on if there's any hidden costs on switching? If your going to take a tax hit it might be better to stay.

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danielc
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Re: Thoughts on bond mutual funds: BBBIX and ADLIX

Post by danielc » Wed Jan 15, 2020 12:50 am

octreotide wrote:
Wed Jan 15, 2020 12:27 am
These are some bond holdings my old advisor had me in. Any idea in why I'd be in both instead of just one?
BBBIX is a short duration fund (duration = 0.94 years) while ADLIX has a longer duration (4.87 years). Duration is a measure of the interest rate risk of a bond or bond fund. If the Fed increases interest rates by 1%, you can expect BBBIX to drop in value by around 0.94% and ADLIX to drop in value by 4.87%. In exchange for the greater risk, bonds with longer durations typically give you a higher yield. What your advisor has done is put some of your money in a relatively safe fund with lower yield (BBBIX) and some of your money in a fund with more risk and higher yield (ADLIX).

octreotide wrote:
Wed Jan 15, 2020 12:27 am
I'm at fidelity so looking at their offerings I was looking at FXNAX to compare. Expense ratios are a couple basis points lower, dividends are a little higher, but show is the NAV making that ratio look actually than where I'm at with BBBIX, for example.

Community thoughts on staying put or repositioning into other bond selections?

What are the key criteria that's making you lean which ever direction you are?
FXNAX would be a good replacement for ADLIX because they have similar durations (FXNAX duration = 5.75 years) and FXNAX has a lower expense ratio. But if you like the idea of having a pot of money in a safer, less volatile fund, you should either keep BBBIX or maybe consider an ETF. Unfortunately Fidelity doesn't seem to have an index fund alternative with a duration as short as BBBIX, but there are several good ETFs (like SHV from iShares) that could work, if you want to go that route. Most people just use something similar to FXNAX for their entire bond allocation. So that's fine too.

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