Vanguard's Ultra-Short-Term Bond Fund - VUBFX & VUSFX

For Bob Brinker readers who are seeking to minimize DURATION in their Fixed Income portfolio in anticipation of a rising interest rates going forward, you should consider Vanguard's two new ultra short duration bond funds.

Current Charts

They are Vanguard's:

• VUBFX - Ultra-Short-Term Bond Fund Investor Shares
• VUSFX - Ultra-Short-Term Bond Fund Admiral Shares

Fund Comparison

Fund	Minimum Investment	Current Yield	Expense Ratio	Average Duration
VUBFX	$3,000	1.30%	0.20%	0.9 years
VUSFX	$50,000	1.35%	0.12%	0.9 years

For my recommendations for fixed income investments, read "Kirk Lindstrom's Investment Letter."

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

BEWARE OF PEDDLERS OF FIXED INCOME ADVICE!!!!

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.

• See "Timer Digest Market Timer of the Year Awards"

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.  

• See Best Savings Account Rates to see who currently has the best rates.

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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From "Timer Digest Market Timer of the Year Awards"

Fixed Income - Bond Fund Risks

Here is a good article from Vanguard titled Risk lurks in the search for current income.

Key Points:

• If someone moves from a money market fund yielding 0.11% into a bond fund yielding 2.52%, he or she would pick up 2.41 percentage points in current yield. On a $10,000 investment, that equates to $241 a year, assuming interest rates remain steady.
  
  But....
  
  
• If rates were to increase by, say, 4 percentage points to 6.52%, the impact to a bond fund with an average duration of 4.3 years means the share price would drop by 17.2% (for a total drop in account balance of $1,720 on the $10,000 investment), all else equal.

In my own account and in "Kirk Lindstrom's Investment Letter" portfolios, I am totally out of bonds and bond funds not indexed to inflation.  I own and recommend TIPS, TIPS funds, Series-I Bonds, CDs with FDIC and CASH in money funds and other savings accounts.   American Express Bank is offering 1.30% and I've seen higher with a bonus at CapitalOne Bank through Costco.

In 2009 Vanguard's TIPS fund, VIPSX, gained 10.8%
In 2009 Vanguard's GNMA fund, VFIIX, gained 5.3%

As of yesterday (10/6/10)
VIPSX is up 9.05% YTD
VFIIX is up 7.08% YTD

I dumped my Vanguard GNMA (VFIIX) fund almost 2 yrs ago in my Vanguard ROTH and bought the TIPS fund VIPSX. Total gain as of yesterday  for VIPSX was 22.5%!

The REIT index fund at Vanguard, part of my core portfolios recommended for conservative and aggressive investors, is up 22.55% YTD!  It gained 29.6% in 2009 but lost 38% in 2008 so it is volatile.


Also make sure you read Vanguard Lowers Admiral Shares Minimum to $10,000

Key points:

• Vanguard has reduced the minimum amount required to qualify for Admiral™ Shares to $10,000 for most of our broad-market index funds and $50,000 for actively managed funds, down from the previous $100,000 minimum.
  
• Admiral Shares cost significantly less than traditional fund shares, and their expense ratios are among the lowest in the mutual fund marketplace.

Now all my core portfolio funds will have even better returns!

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 171% (a double plus another 71%!!) vs. the S&P500 UP a tiny 14.5% vs. NASDAQ UP a tiny 8.7% (All through 10/7/10) (More info - FREE Sample Issue)

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