FREE NEWSLETTER
Go to main Forum page »
I have just read in the WSJ and Barron’s that a majority of active bond funds are outperforming passive index funds. I do not understand. I thought that ,thanks to HumbleDollar,that a vast majority of active funds do not beat the indexes, for reasons we are all aware of.
Please, is this an apples to apples comparison? If it isn’ t, would it be that a respected paper is omitting crucial information? Jonathon told me a few weeks ago that itis probably because of lower credit quality,etc., so it is not a fair comparison.
To me, this is misleading information, and I am surprised that the WSJ would print that. After all, how can an active fund charging even .5 percent, do better than an index fund, charging one tenth of that, if they are trading the same securities?
The markets are a less than zero sum game, etc., and I truly do not understand. I promise this will be the last time I ask such a question, and again, especially in a conventional account, I would surely feel that an active fund would not be competitive with an index.
How can a respected paper publish such information, if it is not an accurate comparison? Treasuries can be purchased, though not sold, directly, and there are no fees at purchase or annual fees. Yet, an active treasury fund can do better, trading he same bonds? Or are the better results only on municipals, corporates and the like?
Once again, thank you for any insight you might provide. There is so much information constantly bombarding us, I have difficulty sorting it out.
On another subject, the WSJ and Barrons have been running articles lately, with advice that we ” buckle up for a bumpy financial ride’, etc., because the markets will provide much volatility, a “rocky road”, and so forth, with the elections, the turmoil in the Middle East, and on and on. A question for them might be, ” please, when have the markets not been bumpy and volatile ?”
Now, my outlook, The stock and bond markets will not provide a linear return, and I do not know the direction of interest rates, dividend stocks will pay dividends, some will cut them over time, some will increase.
The long term outlook is positive, and a mix of stock, bonds and cash should serve you well. The United States markets may or may not be the best worldwide investment ,going forward. too. I will never outdo Warren Buffett’s investment success, and my likeness will never be on Mt Rushmore, either.
First, there is a difference between stocks to bonds.
Stocks: when US LC are doing well as they have done since 2010, it’s difficult to beat them.
But, during 01/2000 to 02010, the SP500 lost money.
Bonds: not all bonds are equal. There is a huge difference between treasuries with the highest correlation to rates, while bank loans do much better in rising rates and there are special bond funds.
This is my world. I’m a bond fund trader based on markets, special funds with low volatility and use only 2-3 funds. I never invested directly in treasuries. I retired with a portfolio size of 25 times our yearly expenses and doubled it, I don’t use stocks anymore for years.
PIMIX was my first bond from 2000 to 2008.
In the last year CLO did great with low volatility.
See CLOZ performance in 2024 vs BND(index), VGIT(treasuries).
https://schrts.co/VPsmTQwT
I’d prefer to see a comparison of returns of all actively managed bond funds versus all passive index bond funds. That’s the true test over time.
I don’t buy bond funds. I buy bonds. Investment grade municipal bonds and corporate on a 7 year ladder. Hold to maturity. No fees. For short term, I roll 6 month Tbills and pay no fees. I purchase all through Fidelity.
Thank you, everybody for the clarification! All I needed to read was ” More credit risk….”, and I shall happily keep my T-Bills and T notes,purchased at TreasuryDirect, and the VGSH ETF, the SGOV ETF, all purchased for zero fees and tiny annual expenses. (although it does cost a bit for the electricity to power the computer, I shall pick up discarded beverage cans and turn them in for the nickel redemption to offset that cost)
It is difficult to believe, at least for me, that there are still many bond funds charging sales loads, and / or 12-B 1 fees, and high annual fees. There are ways to avoid a lot of those charges, but, why would anybody pay annual fees, 10 times higher, or more, than index funds?
I like Jonathon’s approach, take virtually zero risk with bonds, use only short term treasuries, and perhaps have a higher allocation to stocks and so forth, to maintain the same risk/ reward profile as a typical 60/40 mix.
A guy named Warren Buffett favors stock and 3 and 6 month Treasuries, he generally avoids bonds, I just read that he has something like 3 % of all T Bills and Notes. His mentor, Graham, favored bonds of no more than 6 year duration and generally advocates a 50-50 stock/bond mix, and adjusting it as age and valuations change, never having more than 75% in either asset class.
Now, off to find those darn bottles and cans! And , thank you very much!
Know that if you’re going to stick to T-bills and T-notes you can probably make your and your heirs’ life simpler by having them at a brokerage, also with no fees, rather than with Treasury Direct.
Below are excerpts from the WSJ and Barrons with my boldface added.
Active bond funds have performed well lately. Of nearly 1,700 actively managed bond funds covering a range of investment strategies tracked by Morningstar Direct, 74% beat their benchmark indexes in the past year. That is an improvement from the 18-month stretch of the Fed’s aggressive rate-hiking campaign, during which 58% of bond pickers lagged behind comparable bond indexes.
https://www.wsj.com/finance/investing/bond-investors-are-paying-up-again-for-active-fund-managers-586e691b
“Actively managed funds in the intermediate core bond category tend to court more credit risk and sport shorter durations than index offerings,” Morningstar wrote. “That posture was ideal during the year ended June 2024 as credit spreads narrowed and persistent inflation pushed back the timeline for interest-rate cuts.”
Active bond managers’ performance over longer periods is also spottier. A majority of intermediate core managers beat passive funds in 2023 and 2021, but lagged behind in 2022.
All in all, about 38% of active bond funds beat comparable index funds over the past 15 years.
https://www.barrons.com/articles/active-bond-funds-market-index-cece8ce8
Let’s not get confused by media reporting information favorable to advertisers. I’d be really curious how much these active bond funds look like the passive funds and how much of their return after expenses and taxes vary.
I can’t see the articles – behind a paywall at WSJ, but I’d expect they’re comparing Gala apples to Red delicious apples. Also, I doubt bond indexes can be as comprehensive as stock indexes in covering their respective investable Universes. I’d focus on whether my bond funds are delivering what they promised me – and as long as that is true, this is noise I’d ignore.