On May 24th, Vanguard closed their high-yield bond fund (VWEHX) to most new investors. It remains open to current shareholders. From their website:
Due to a sharp increase in cash flow into Vanguard High-Yield Corporate Fund—more than $2 billion in the last six months alone—we've closed the fund to most new investors.April 29, 2012, Moneytalk, (answering a question about duration and inflation) Brinker replied: "You should worry about everything, I worry about everything, because things are always changing. But your point is right on.... This is the reason we have used junk bond fund investing to a certain percentage....For example, in our income portfolio that I publish on page 7 of the investment letter, we do use a high-yield fund in there....I don't have a five or ten year opinion on that, but I can tell you right now, we are maintaining our position, here in the month of April, we are maintaining our position in the high yield fund in the income portfolio. And my anticipation is we will maintain that position in May."
Usually when a fund closes that is included in Brinker's portfolios, he simply sells the closed fund and replaces it with another one. Many here wondered what he would do in this case since the Vanguard High-Yield
Bond Fund is the only high-yield fund that he has ever recommended -- and he
regularly sings its praises.
Well, now we have the answer. He did not replace VWEHX, he simply added a new choice for new subscribers:
Well, now we have the answer. He did not replace VWEHX, he simply added a new choice for new subscribers:
June, 2012, Marketimer, Bob Brinker wrote: "New subscribers can substitute Metro West Total Return Bond Fund (MWTRX."
Seems like this is an apples for oranges replacement. Metro is not a high-yield bond fund. It certainly does not pay as much dividend as VWEHX and it is less volatile. How will he accurately track the returns on his portfolio if some subscribers own MWTRX and some own VWEHX? From Yahoo Finance:
Seems like this is an apples for oranges replacement. Metro is not a high-yield bond fund. It certainly does not pay as much dividend as VWEHX and it is less volatile. How will he accurately track the returns on his portfolio if some subscribers own MWTRX and some own VWEHX? From Yahoo Finance:
Metro Total Return Bond Fund Summary
The investment seeks to maximize long-term total return. The fund pursues its objective by investing, under normal circumstances, at least 80% of net assets in investment grade fixed income securities or unrated securities that are determined by the Adviser to be of similar quality. Up to 20% of the fundâs net assets may be invested in securities rated below investment grade. Under normal conditions, the portfolio duration is two to eight years and the dollar-weighted average maturity ranges from two to fifteen years.
* Metro's year-to-date returns are 4.5%; dividends: 4.1%.
* Vanguard High Yield YTD returns 5.4%; dividends: 6.75%.
(See below for Jeffchristie's Summary of the Neale Godfrey Moneytalk show today, and his weekly Moneytalk Final Exam Question -- It's tougher than usual.)
(See below for Jeffchristie's Summary of the Neale Godfrey Moneytalk show today, and his weekly Moneytalk Final Exam Question -- It's tougher than usual.)
You are right about apples and oranges HB.
ReplyDeleteThe junk fund and Metro West fund are two completely different animals. They are not even in the same peer group.
This is a definite switch in outlook by Brinker and needs to be fully discussed by him.
He no longer likes junk bonds and he should explain why.
HONEYBEE WROTE-----
ReplyDelete"June, 2012, Marketimer, Bob Brinker wrote: "New subscribers can substitute Metro West Total Return Bond Fund (MWTRX."
"Seems like this is an apples for oranges replacement. Metro is not a high-yield bond fund. It certainly does not pay as much dividend as VWEHX and it is less volatile. How will he accurately track the returns on his portfolio if some subscribers own MWTRX and some own VWEHX?"
Why does Bob need to be tracked for performance based on what a million or so subscribers have in their portfolio? My humble guess is that few followers have a perfect match of Brinker's recommendations anyway.
I like some of what Brinker recommends, but some stuff I don't like. Am I the only one that doesn't clone his model, item for item, dollar for dollar, percentage for percentage?
Will Bob's letter be judged on it's own merit? Not on my own variation of what I do?
If I own VWEHX, I'm not dumping it. It has done well and I expect it has more to run.
If I can't get VWEHX, well, Bob offer's an alternative. I guess we will see in the fullness of time how that recommendation plays out.
Do we need to start the criticism so early in the game?
Memphis Mephisto
Memphis Mephisto asked: "Why does Bob need to be tracked for performance based on what a million or so subscribers have in their portfolio?
ReplyDeleteMM,
Bob Brinker's performance is tracked by himself and Mark Hulbert based on an average of his three Marketimer model portfolios. And that information is used by him in his newsletter advertising and on his website.
Brinker uses these numbers on Moneytalk to sell his newsletter to the "goobers and geezers" who are suckered into believing that he can....tada!....time the market.
Even though the income portfolio is not part of Hulbert's official tracking, he does report its returns yearly.
For several months now, Brinker has been tooting his horn about how well his income fund is doing.
Now these simple facts may be a bit complex, but I trust you can figure it out.
How is he going to track his returns when he has basically added a new bond fund to the portfolio.
Oh, I know, he ISN'T.....It's another one of those Bob Brinker recommendations that will just go away.
Hi Ms. H.B.
ReplyDeleteMWTRX has excellent managers.
I have owned it in the past and
it does good.Most of that fund family does well.I don't own MWTRX.
Have a good day Ms.H.B.
Thanks Dav,
ReplyDeleteDo you agree that it is not a high-yield bond fund? Over 50% of its holdings are in triple-A bonds.
Honeybee,
ReplyDeleteBob offers MWTRX as a proxy for VWEHX. Do you not think it is a good match?
Returns seem to be comparable. 1, 3, 5, 10 year returns look fairly parallel. MWTRX seems to be less volatile.
At the end of the year would you not think that owning MWTRX or VWEHX will only change the overall picture fractionally?
Comparisons and evaluations or grading will not be significantly different. Nor will it be difficult, unless one chooses to nit pick and make it difficult.
Have you heard the term, "close enough for Government work"? May I suggest another saying? How about,"good enough for selling financial products to the mass radio audience of gomers, goobers, and geezers."
Memphis Mephisto
Yes, Metro West is not a high-yield fund yet curiously the Morningstar Style Box has the same low credit quality for both funds. Could be that Mr B can't find a suitable fund to switch to or feels that most of the short term gains have been made in the junk bond arena and would advise moving to lower risk debt.
ReplyDeleteHoney said "this seems like an apples for oranges replacement." That is exactly how Bob came across the idea for this fund, while studying his grocery list.
Milk
Waffle mix
Tuna
Rice
Xtra strength Tylenol
Frankj --
ReplyDeleteMWTRX vs. VWEHX. One a junk bond fund (VWEHX) and one not. Maybe BB is looking at risk/return and does not see another High Yield fund out there meeting his criteria, which probably include, % return, risk, cost of ownership, manager experience, and whatever else.
birdbrain: you left 100 Watt, incandescent light bulbs off the shopping list!
Anonymous anonymous said: "It was just painful listening to Godfrey. She sounds like a nice lady but is not cut out for the radio, period"
ReplyDeleteI agree. What bothered me the most about her program was that constant carp about how "This is YOUR SHOW," and "I want YOUR OPINION."
Yeah, right Lady! And I have a bridge for sale. If it was MY show, I'd talk about what people are interested in, not politics.
The one guy who gave excellent opinions, which she didn't agree with, she shredded after he was off the air.
We are not that stupid, Ms Godfrey....
Birdbrain posited: "Could be that Mr B can't find a suitable fund to switch to or feels that most of the short term gains have been made in the junk bond arena and would advise moving to lower risk debt."
ReplyDeleteI suppose it is possible, but that sure isn't what he said in Marketimer. The only reason he gave for offering the substitute "for new subscribers" is the fact that Vanguard is closing the high-yield fund to new shareholders.
And he did not sell any portion of the 25% weighting in his income portfolio.
He gave the current yield slightly lower than Yahoo shows it: 3.65% and duration at 4.1.
FrankJ,
ReplyDeleteHope you got all the duct tape off. LOL!!!
All of Brinkers subscribers who are presently invested in the Vanguard junk bond fund will be able to continue to invest in it.
ReplyDeleteIt is only closed to NEW investors.
Basil
I did.
ReplyDeleteA cooler head prevailed, (mine) and I used painter's tape instead of duct tape, to prevent my head from exploding during yesterday's first call. Thanks, HB.
-- Frankj
Basil says: "All of Brinkers subscribers who are presently invested in the Vanguard junk bond fund will be able to continue to invest in it.
ReplyDeleteIt is only closed to NEW investors."
Basil,
How many times would you have liked for me to repeat that it is for "NEW" subscribers and "NEW" shareholders?
I want to thank Honeybee for bringing up the subject about VWEHX. Until her article I didn't realize that the fund had restricted new investors.
ReplyDeleteIn some ways I view that event as a negative indicator going forward. Too many people are piling into bonds of all sorts seeking safety. Excessive exuberance of investors chasing the better returns of VWEHX could be a sign that the bursting bond bubble is closer than we should like.
Who wants to be the last Joe in the queue waiting to buy tulip bulbs?
Memphis Mephisto
An anonymous bidder forks over a record $3,456,789 in an eBay charity auction to have lunch with famed investor Warren Buffett.
ReplyDeleteMemphis,
ReplyDeleteI do not think that this reflects negatively on junk bond funds, and Brinker has not indicated that he does either.
I personally own a ton of them. They are volatile, but those huge dividends have been rolling in for years now.
I fortunately own Vanguard High Yield Bond fund, so can keep adding to it. Right now, I reinvest the dividends, so these dips never hurt me at all.
In 2008, when the market crashed 57%, that fund took a real beating. Brinker never said a word about it. Some of his subscribers emailed me for advice.
If the market crashes again, junk bonds will decline. You can take that to the bank. :)
"Right now, I reinvest the dividends, so these dips never hurt me at all."
ReplyDeleteThe dips never hurt anybody unless you are forced to sell. That is why it is silly to try and time the bond market.
You lose more in income than you save in principal.
I don't know of a single bond market timer who is actually ahead of the long term investor.
Bondholder
Honeybee,
ReplyDeleteYour junk bonds have done well and will probably keep doing so. At least for the short run.
My uneasiness about the great minions piling into the bond funds across all spectrums of style and risk is meant in a general sense with no real foundation of knowledge or scientific research. It just doesn't feel right!! Kind of like a man that may feel bad for a day or two not knowing what's wrong, but passes out and falls dead to the floor with a massive heart attack in the afternoon.
The market was stressing for the better part of 2010 and 2011 fearing a double dip decline. A delayed double dip reaction after the Nov. election is possible. The inevitable increases of the US tax rates, an increase of debt and money printing, all those things will not help.
The economic health of the country is in jeopardy. We are just not quite feeling fine. The drugs of cheap easy money we get from Dr. Bernanke mask the real problems. And, are we not afraid that the market will one day unexpectedly turn blue with spasmodic choking, seizures, chest pains and collapse?
So, the irrational exuberance of armies of investors dumping tons of money into bonds and bond funds of all sorts just doesn't sit well with me. It puts the body out of balance.
Do I have an answer? No. Would anyone listen if I did? No. All I'm left with is the same caution statement as one would use for crossing the street, "look both ways and be careful".
Memphis Mephisto
Honey said "this seems like an apples for oranges replacement."
ReplyDeleteBirdbrain replied: "That is exactly how Bob came across the idea for this fund, while studying his grocery list."
I always assumed that Mrs. Brinker took care of the food, while Bob was hunched over his PC, busily timing the market.
This may be of interest:
ReplyDeleteRecession Has Already Begun, Analyst Says
goToArticle
Anonymous,
ReplyDeleteThank you for calling that article to our attention: Recession Has Already Begun, Analyst Says
Seems like a bullish inverse head-and-shoulders has completed in the Dow. Minimum upward measurement points to above 13,000.
ReplyDeleteAnd yet there is the Greek election this weekend. What to do?
My granddaughter has always said, "If you don't know what to do, do nothing!" I think that's exactly what I'll do! See y'all next week!
This may be of interest:
ReplyDeleteRecession Has Already Begun, Analyst Says
goToArticle
Oh sorry HottieBee that post was from me, little ol' tfb