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robynn i went searching for this especially with you in mind as i know your a fixed income bug and expressed interest in etf's..
with all the interest in fixed income and avoiding equities i have been tracking for years now a 100% fixed income portfolio using nothing but a variety of bond funds that cover every corner of fixed income investing. its done very very well.
i track a few hypothetical portfolios using etf's and one was 100% fixed income that caught my attention a few years ago.
i couldnt remember the percentages to start with ,nor could i remember who conceived it.
it took me a while to find a copy of it because i thought it was conceived by swedroe or swenson but its actually the brain child of william larkin.
it uses all etf's which are funds that trade like stocks.
Larkin's portfolio:
25% iShares Barclays Aggregate Bond ETF (AGG) (Tracks a broad index of high-quality U.S. bonds)
25% iShares iboxx $ Investment Grade Corporate (LQD) (Tracks an index of the most liquid, long-term corporate bonds)
10% Fidelity Floating Rate High Income (FFRHX) (Invests in floating rate bank loans that automatically adjusts to rising short-term interest rates. It offers additional inflation hedge)
10% iShares MBS Fixed Income (MBB) (Tracks a broad index mortgage-backed securities)
7.5% SPDR DB International Govt Inflation-Protected Bond (WIP) (Invests in an index of non-U.S., inflation-linked bonds)
7.5% PowerShares Emerging Markets Sovereign Debt (PCY) (Tracks an index of emerging markets government debt)
7.5% iShares Barclays TIPS Bond (TIP) (Tracks an index of inflation-protected, U.S. Treasury securities)
7.5% iShares Iboxx $ High Yield Corporate Bond (HYG) (Tracks an index of high yield bonds)
Last edited by mathjak107; 05-26-2012 at 03:52 AM..
It seems like you need to respond to interest rate changes just as if you buy individual issues. We have been in a period with low and dropping rates for so long it is easy to forget how quickly the value of bond funds will drop when rates rise.
the scarey thing is this. we have been in a bond bull market for 30 years. folks who ran to bonds for safety have never experienced a bond market sell off in their lifetime and a real bear market in bonds.
.
those in these target date funds that are at or near retirement will get a pretty rude awakening when bonds have a sell of.
they will see why investing by age instead of whats happening in the big picture is a big mistake.
when they look and see they lost 8-10% of their investment if rates rise 1% we may have a sell off like never before .
Hi Mathjak - Didn't mean to ignore this thread. I've just been really busy the last couple of weeks. Spent a lot of time cooking for my husband's birthday today. Luckily - he didn't want anything grilled - because Beryl would have put a crimp in that plan. So lasagna it is. Knock wood - we didn't lose power.
Anyway - the problem with the portfolio you mention is a fair number of these funds (hadn't heard of any except LQD and HYG before) are fairly illiquid. For example - WIP only trades an average of 200k shares a day. MBB about 373k. PCY about 796k. Whereas LQD trades about 1.9 million - HYG trades about 3.2 million - and JNK trades about 5.3 million (SPY trades about 156 million!).
This lack of liquidity can easily result in 2 problems. First - it can be difficult/impossible to buy/sell at reasonable bid/ask spreads. Second - when an ETF has such small volume - it can trade more like a closed end fund (at a fairly large premium/discount to NAV) than a more liquid ETF.
Anyway - I think this portfolio of funds probably works better on paper than it would work in the real world. Robyn
except for hyg and agg i never owned the others so i cant say.
as far as etf's acting like a closed end fund they dont trade more than a smidgeon above or below their actual assets and if they do its corrected instantley.. thats because unlike a closed end fund institutions arbitrage any slight difference immeadiatly that happens between the etf and its actual holdings the instant a spread appears bringing it back into line again.,
except for hyg and agg i never owned the others so i cant say.
as far as etf's acting like a closed end fund they dont trade more than a smidgeon above or below their actual assets and if they do its corrected instantley.. thats because unlike a closed end fund institutions arbitrage any slight difference immeadiatly that happens between the etf and its actual holdings the instant a spread appears bringing it back into line again.,
Keep in mind that liquidity in many/most bond markets is more the exception to the rule than the rule. The opposite is true in many/most equity markets.
Also - you really have to look at what you're buying. For example - WIP is currently holding 42% cash.
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