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Tuesday, January 21, 2014

Beware of Bob Brinker's Bond Fund Advice: DBLSX, FFHCX, MWLNX, OSTIX and VFIIX


In this Marketwatch article titled, "What to buy instead of bonds" Mark Hulbert says not everyone is recommending selling all your bonds.   He says Bob Brinker is still recommending bond funds:
"Bob Brinker, editor of Bob Brinker’s Marketimer — recommends that the average duration of your bond holdings be no longer than just 13 months. 
The four short-term bond funds he recommends are the DoubleLine Low Duration Fund DBLSX, with a 0.72% expense ratio, or $72 per $10,000 invested; the Fidelity Floating Rate High Income Fund FFHCX, with a 0.7% fee; the Metro West Low Duration Bond Fund MWLNX, with a 0.57% expense ratio; and the Osterweis Strategic Income Fund OSTIX, with a 0.91% fee. Their average current yield is 2.1%."
Look at the HUGE expense ratios for these funds!!!  These are not quality bonds backed by the US government like GNMAs or Treasuries either.  

You have to wonder why someone who talked the walk of low cost index funds for the past 15 or so years is now back to recommending expensive mutual funds where the expense ratio is a significant percentage of the max gain you can expect while the losses are unlimited due to possible defaults.  What is his motivation?

This goes against what I've recommended to my readers.   Last year I had ZERO bond exposure in my core portfolios which allowed me to be named "Bond Timer of the Year" for 2013.
Last year, Bob Brinker's "Income Portfolio" lost 0.5% according to the January 2013 issue of "The Hulbert Financial Digest."   The newsletter he markets with his son when people don't want to buy a newsletter about stocks, The Fixed Income Advisor, didn't have a good 2013 either.

No More GNMA Bonds!

Brinker told a caller to his show this weekend he doesn't recommend Vanguard's GNMA fund, VFIIX, any more and doesn't have a replacement fund from "that fund family."  Could it be that Vanguard doesn't want to sell funds that are not great for their members?

Last year I had the "fixed income" part of my two "core portfolios" in a 100% safe, FDIC guaranteed money market fund that payed 0.85% for the year.  
Why is Brinker recommending these funds with huge expense ratios when you can get CDs and savings accounts with zero risk?

Is it because if he told his readers what I tell mine, use the CD tool at Vanguard to buy CDs for better return in IRAs than the safe money funds, the ONLY safe fixed investments these days, that he'd lose subscribers?

He is basically giving the fixed income people stock market risk but without the unlimited upside of stocks... Do you think the VCs in Silicon Valley or Warren Buffett are buying the funds he recommends with their cash?

Remember this is the guy who in 2000 told people to buy QQQ before it crashed  and TEFQX before the internet collapsed for what seemed a way to advertise he was hip and into what was making money as the NASDAQ soared after he said to reduce equity exposure in January 2000.

I would love to have a caller ask him point blank if he has 100% of his investments in what he recommends and if not, why and what is different.

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  1. GNMAs are 100% guaranteed by the government. It seems Bob wants you to give that up to buy junk.

    It looks like over 80% are rated BB or below... junk bonds!

  2. Did Bob Brinker give up on diversification and safety for retired people?

    Bob still shows a 50% stock/50% fixed income allocation recommendation for those "nearing or already enjoying a retirement lifestyle", to quote the Marketimer portfolio page. But his fixed income asset classes have radically changed, and no longer are the 'safe AAA bonds' that one normally associates with the fixed income holdings of a 50/50 retirement portfolio.

    I'm sure you know that his current Marketimer Model Portfolio III, for its fixed income portion has:

    Fidelity Floating Rate High Income FFRHX 20%
    Osterweis Strategic Income Fund OSTIX 10% (currently invested mainly in junk bonds)
    DoubleLine Low Duration Bond DLSNX 20%

    So does that provide the Diversification you refer to? As you know, typically junk bonds and bank loans/floating rate funds do very poorly in bear markets.

    Finally, he has not rebalanced his portfolios since 2003 so his "balanced" model portfolio three is two thirds to seventy five percent in stocks! What happens if he misses another bear market like he did in 2008?

    Also, where's the diversification?

    In a bad bear market, it seems to me that the entire Model Portfolio III does very badly. Bob Brinker risks what he has warned about forever, when he says: 'when you reach critical mass, you never risk losing it'

    Well, with 75% in stocks and the fixed portion in funds that will probably lose money in a bear market, he gave it all up!


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