Buying bonds is not always easy to do for individual investors as a function of size and also the ability (time wise) to track many different individual issues held. The fixed income space in ETF land has become a lot deeper in the last year or so with many foreign funds having come out, I think the concept of the BulletShares from Guggenheim is very useful and now we see the first sector ETFs for domestic corporates.
I think the old Claymore (now Guggenheim) registered similar funds but I am pretty sure they never came to fruition.
The ability to use corporate bond funds without financials is a huge step forward. We own individual issues as part of our fixed income mix but we also use some funds. Long time readers may recall I prefer a mix of both in building both the equity and fixed income sides of the portfolio and so the extent to which the fund side branches into new territory is useful.
The effective duration of ENGN is 7.3 years and the yield to maturity is 3.07%. For MONY the effective duration is 5.4 years and the YTM is 3.84% and for AMPS the effective duration is 8.55 years with a YTM of 3.44%. Those yields may or may not look attractive to you given that overnight money yields zero but don't forget that the way bond ETFs work, that will be the yield unless it isn't--which is to say that there can be no expectation of yield consistency as a function of changes in the market and changes in the share count of a fund even with accrued interest.It might be possible to observe a range of probable payouts for funds like these but obviously that won't come until it has at least a few payments under its belt.
Bond funds have drawbacks which is ok because individual issues have drawbacks too. The problems only arise when someone buy either type of product without understanding the drawbacks.
If you're a baseball fan, the picture needs no explanation.
7 comments:
Am I correct in saying that an ETF is in essence a closed end fund? If that is the case, if interest rates rise and the value of the bonds falls the fund NAV will fall and so will it's market price. However, as a CEF it will not be forced to sell the bonds but will simply hold them to maturity, thus avoiding a capital loss. A mutual fund, however, will be forced to sell bonds to meet redemptions. So, for the person who is willing to hold for the long term it seems to me that the ETF fund is much superior to the mutual fund. What do you think?
ETF=CEF? No
While ETF's market price can stray from its IIV like CEFs and NAV, ETFs create and redeem shares similar to traditional mutual funds. If an ETF needs to sell because assets leave the fund then the fund can be impacted. Each product has advantages and disadvantages, we use all three products plus individual issues.
Mutual funds are better due to end of the day pricing. It removes a tiny bit of liquidity which could otherwise lead to foolish emotional decisions during bout of market euphoria and panic. Helps focus more on investing and less on speculation.
Not sure how one person can proclaim what wrapper all other participants should use.
Gimme a break. The dude was asking a basic question that I gave my opinion on.
I guess I should have said "In my opinion" to satisfy the lawyers.
Roger,
Better maybe his card in a Mets uniform ?
Bo Socks game 6, Gary gets on base - must still hurt a lot of people !
Actually saw him at an event after his career was over - seemed like a nice guy - not full of himself
Roger, Berto (Albert Galick) here. Remember when we graduated from Montgomery HS in 1976? Fed funds rate was 5 1/2% on it's way to 20% in 1980, after the Iranian revolution. Iran panic looks like it's again shaking money loose from under mattresses, and the Fed is sitting on a huge bomb of a balance sheet, with more inclination towards QE3 than to reversing QE2, which is what they should do before raising rates to avoid hyperinflation, according to Hussman's liquidity preference work. So what advantage could any bond fund possibly have to overcome this contingency?
Post a Comment