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Replacements for BSV, VFSTX

 
 
Rich Carreiro
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      10-26-2010, 03:05 PM
For my own reasons, I am interested in switching
out of Vanguard's BSV ETF and out of their VFSTX
open-ended fund and would like recommendations for
close equivalents (either ETF or "regular" funds).

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Rich Carreiro (E-Mail Removed)

 
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HW \Skip\ Weldon
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      10-26-2010, 05:52 PM
On Tue, 26 Oct 2010 09:05:01 CST, Rich Carreiro <(E-Mail Removed)>
wrote:

>For my own reasons, I am interested in switching
>out of Vanguard's BSV ETF and out of their VFSTX
>open-ended fund and would like recommendations for
>close equivalents (either ETF or "regular" funds).


Rich is a serious and very knowledgeable guy, and I have no doubt he
has good reasons for being interested in changing investments.

Having said that, please let me butt into this thread by mentioning a
pet peeve.

Anyone who makes suggestions to a client without first knowing a great
deal about what the client likes/dislikes/needs is not my idea of a
very good consultant. Just my opinion. Others are free to beat me up
about this.

 
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BreadWithSpam@fractious.net
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      10-26-2010, 09:21 PM
Rich Carreiro <(E-Mail Removed)> writes:

> For my own reasons, I am interested in switching
> out of Vanguard's BSV ETF and out of their VFSTX
> open-ended fund and would like recommendations for
> close equivalents (either ETF or "regular" funds).


Do you mean specifically short-term investment grade bonds
or are you more interested simply in lower-risk, dividend-paying
investments?

Are there any issues with respect to taxes (ie. a preference for or
against muni bonds?)

Or would you want, say, less exposure to, say, treasuries?

That all said, as far as short-term investment grade bonds go, the
Vanguard fund is about as good as it gets - well-managed and low-cost,
and while I do like indices for this asset class - I don't think there's
much risk-adjusted added return that active management can bring to this
space beyond basic asset allocation choices (ie. perhaps less treasuries
and more corporates right now for example), Vanguard's non-index fund
has been handled well, and they do it cheaply.

BSV (which is an index fund) is currently more than 56% treasuries
and 21% corporates, while the actively managed VFSTX is 50% corporates,
plus some foreign corps and only a couple of percent treasuries.

Morningstar's recommendations for investment-grade short-term bonds are
the Vanguard index one (not the one you noted above but rather the
open-ended version of BSV, which is VBISX) and T. Rowe Price's fund
PRWBX.

If you want to go a little bit shorter in duration (for less
interest-rate sensitivity) and more into corporates (mostly for some
more yield, but with some spread exposure), you could look at iShares
Barclays 1-3 year credit bond index ETF (CSJ). It's got nice low
expenses and it's tracking a good index. It's currently 66% US
Corporates, 27% foreign corporates and the rest is a smattering of
foreign government and US agency bonds, with pretty much all of it
investment-grade. Vanguard's got their own similar ETF with short-term
corporates, too, but it's only very recently started and while they've
gathered assets pretty quickly, it's still much smaller than the
iShares one. Vanguard's is VCSH and its expenses are 0.15%.

There are also several similar indices which stay only within government
and/or treasuries, too, of course.

There is even a short-term TIPS ETF, too, which Pimco just started up
recently (STPZ).

Anyway, as Skip said, without knowing more about what specifically
you're looking for, it's impossible to make a great recommendation.
These aren't exact equivalents, but they are in a pretty close asset
class (short-term investment-grade).

Hope that helps.

On a related note, there's been a big runup not only in treasuries but
also in TIPS. There was a treasury auction yesterday and demand for
TIPS was so high that they sold $10billion of 5yr TIPS at a *negative*
yield.

http://www.bloomberg.com/news/2010-1...tips-sale.html

Yikes.



--
Plain Bread alone for e-mail, thanks. The rest gets trashed.

 
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Rich Carreiro
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      10-27-2010, 02:58 AM
(E-Mail Removed) writes:

> Rich Carreiro <(E-Mail Removed)> writes:
>
>> For my own reasons, I am interested in switching
>> out of Vanguard's BSV ETF and out of their VFSTX
>> open-ended fund and would like recommendations for
>> close equivalents (either ETF or "regular" funds).

>
> Do you mean specifically short-term investment grade bonds
> or are you more interested simply in lower-risk, dividend-paying
> investments?


Investment-wise, I'm fine with the funds. I have wholly non-financial
reasons (not appropriate for discussion in this forum) to desire to
divest from Vanguard. So I'm simply looking for close-as-possible
substitutes to those two funds.

And thanks for the ideas!

--
Rich Carreiro (E-Mail Removed)

 
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