How Are Morningstar's Best Bond Fund Managers Faring in These Trying Times
04/29/2011 0 comments
Many working people put off their retirement investing -- just one more year until it has becomes a "hair on fire" problem. The problem is that we can easily be overwhelmed and shut down. The way to solve this is to focus on what works in the long term -- that is what long term investing is all about -- and allow that to filter out what may work in the short term but won't stand the test of time.
We continue to examine different portfolios to see what we can learn and use to further our investment portfolios.
This article reviews the best of bond strategy that we first published in November of last year. This outlined a strategy based on bond funds only It was simple: out of the seven top bond managers (according to Morningstar) own the top performing bond fund which you review on a monthly basis (or quarterly if you prefer). Every year we review the list of top performers and you update your list of funds to maintain only the top performers in your list. We will call this Best of Bonds (BoB).
Currently, the top seven we use are:
|
Bond Fund |
Ticker |
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PIMCO Total Return |
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TCW Total Return Bond |
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Western Asset Core Bond |
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Metropolitan West Total Return Bond |
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Loomis Sayles Bond |
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Dodge & Cox Income |
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FPA New Income |
In a previous set of articles we tried to compete using bind ETFs such as BND, BWX, CIU, CMF, CSJ, IEF, JNK, LQD, MBB, MUB, NYF, PCY, SHV, SHY, TIP, TLH, TLT, WIP but we were unable match the returns of these managed bond funds. With PIMCO recently announcing a managed ETF bond fund, it will be interesting to see whether this gap will be filled.
Bonds have had a torrid time since the turn of the year with many tactical strategies moving to cash rather than staying in bond funds. With interest rates sticking to their lows and with QEII still in operation, there has been little joy for bond owners.
The comparison is
- Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly
- Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year Quarterly
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year Quarterly | 5% | 85% | 11% | 194% | 10% | 164% |
| P Bond Funds Momentum Based on Upgrading Fixed Income Managers of the Year`s Funds Monthly | 6% | 110% | 12% | 219% | 11% | 172% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 13% | 96% | 4% | 16% | 5% | 23% |
| Retirement Income ETFs Tactical Asset Allocation Moderate | 7% | 52% | 10% | 76% | 10% | 66% |
Full details with drawdown and other parameters -- you can also add other portfolios for comparison
Three Month Chart (Blue is Quarterly)
One Year Chart (Blue is Quarterly)
Three Year Chart (Blue is Quarterly)
Five Year Chart (Blue is Quarterly)
Takeaways
- Despite the challenging conditions, the Bond funds continue to deliver reasonable results in the short term and still look good over the longer time horizon
- The retirement income ETF tactical asset allocation has a similar long term performance but with more trading activity
- The strategic asset allocation has been doing well in the short term but suffered in the big downturn
The best of bonds is still a solid approach and with the advent of managed bond ETFs, it may be possible to have an ETF equivalent plan.
Symbols: PTTRX, TGLMX, WATFX, MWTRX, LSBDX, DODIX, FPNIX, BND, BWX, CIU, CMF, CSJ, IEF, JNK, LQD, MBB, MUB, NYF, PCY, SHV, SHY, TIP, TLH, TLT, WIP
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