Brinker Fixed Income Advice & Stock Market Returns 2014 YTD

Yesterday all markets (not counting dividends) closed in the red.

Bob Brinker's Marketimer newsletter has an "Income Portfolio" but Bob Brinker doesn't usually report monthly results for it.  This year the bond market has surprised many with how well it has done despite the fear of the Federal Reserve increasing the Fed Funds short term rates in 2015.

This article is an update of our Sept. 12, 2014 article;

"Bob Brinker's Marketimer Income Portfolio and Radio Advice for Cash"

This graph compares the four funds in the Marketimer Income Portfolio with Vanguard's GNMA fund and the Total Bond index fund.

Fund summary:

• DLSNX, up 1.46% YTD
• FFRHX, up 0.79% YTD
• MWLDX, up 1.59% YTD
• OSTIX, up 1.86% YTD

With 25% in each at the start of the year, the average is +1.425% YTD.

Compare that to:

• Vanguard GNMA fund, VFIIX, up 6.16% YTD
• Vanguard Total Bond Index Fund, VBMFX, up 5.67% YTD

The "Marketimer Income Portfolio" has drastically under performed the total bond index and Vanguard's GNMA funds this year.  Of course, safe CDs and Series I Bonds, that I recommend have done the same but they have zero credit or interest rate risk.

• Current Series I Bond Rates
  
  
• Best Savings Account Rate Survey 

I don't like SOME of the funds in Brinker's income portfolio because their returns are correlated to the stock market (they go down when stocks go down) which exactly the opposite of what you want in a "balanced portfolio."   The two funds that have seen returns plunge much like the stock market are loaded with high risk "junk bonds" that do poorly when stocks do poorly.  

I'd rather own stocks with half my balanced portfolio in something like the Total Stock Market (VTSMX) or the S&P500 (VFINX) and get higher returns when stocks go up then keep the other half in something completely safe like CDs and I bonds discussed above.

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Income Portfolio YTD vs Vanguard GNMA and Total Bond Funds VFIIX & VBMFX

Bob Brinker's Marketimer newsletter has an "Income Portfolio" but Bob Brinker doesn't usually report monthly results for it.  This year the bond market has surprised many with how well it has done despite the fear of the Federal Reserve increasing the Fed Funds short term rates in 2015.

This article is an update of our Sept. 12, 2014 article;

"Bob Brinker's Marketimer Income Portfolio and Radio Advice for Cash"

This graph compares the four funds in the Marketimer Income Portfolio with Vanguard's GNMA fund and the Total Bond index fund.

Fund summary:

• DLSNX, up 1.46% YTD
• FFRHX, up 1.31% YTD
• MWLDX, up 1.48% YTD
• OSTIX, up 2.13% YTD

With 25% in each at the start of the year, the average is +1.595% YTD.

Compare that to:

• Vanguard GNMA fund, VFIIX, up 5.57% YTD
• Vanguard Total Bond Index Fund, VBMFX, up 5.09% YTD

The "Marketimer Income Portfolio" has drastically under performed the total bond index and Vanguard's GNMA funds this year.  Of course, safe CDs and Series I Bonds, that I recommend have done the same but they have zero credit or interest rate risk.

• Current Series I Bond Rates
  
  
• Best Savings Account Rate Survey 

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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FFRHX & VFIIX: Sell GNMA to Buy Fidelity Floating Rate Income Fund, Good or Bad Advice?

This weekend I did something I haven't done in a long time, I listened to "Moneytalk with Bob Brinker Host" live while driving to go windsurfing.  I had read about how Brinker recommended selling the Vanguard  GNMA fund (VFIIX) he recommended on the radio show for years to buy the Fidelity Floating Rate Income Fund (FFRHX)  but had not heard him address this on the radio before today.

WARNING: FFRHX acts like a typical stock fund while VFIIX acts like a bond fund in your asset allocation.

This weekend a caller asked about this advice and mentioned his "financial advisor" recommended an annuity instead.  Brinker then went on his typical warpath rant about how terrible annuities are and how the "financial advisor" may want a big commission.  It was clear that after recommending the GNMA fund on the radio for years and years, you had to pay to read his Marketimer to see any more of his reasons for selling the GNMA fund to buy the Fidelity Floating Rate Income Fund that contains much of what some call "junk bonds."

It is not a surprise he wanted to sell the GNMA fund after it suffered major losses.  For years, when callers asked about the interest rate risk in this fund, Brinker suggested they either

1. Sell the fund and buy a CD ladder or other, similar investments with FDIC insurance.  This is is what I did with most of my money in "fixed income."  I also have money in individual TIPS bought directly from the US Treasury and ibonds, both investments that will never lose money if held to maturity.
2. Place a mental stop loss on the GNMA position and sell when the NAV (net asset value) drops below this price. 

Apparently, Brinker followed his own advice to sell GNMAs after they lost about a year or two's worth of interest and he placed the money in a new fund.

The new fund is very aggressive and should perform in-line with stocks.  That is a TERRIBLE idea for anyone with a "balanced portfolio" where the whole idea of balance is diversification so the bonds go up when stocks go down.    This fund lost 16.47% during the 2008 bear market while the GNMA fund went up about 8%.

WARNING: FFRHX acts like a typical stock fund while VFIIX acts like a bond fund in your asset allocation.

FFRHX Junk Bond Fund lost money in the bear market!!

GNMA Fund went up in 2008 bear market

This is what you want in a "balanced portfolio" to offset stock risk
If you don't want to suffer losses, you should buy CDs

*==> Very Best CD Rates with FDIC <== *

If Brinker is recommending his subscribers buy this fund with money that was in GNMAs, beware that this is a very, very bullish change in his outlook..  

• If he was so smart and good at market timing, whey didn't he switch out of GNMAs and into this fund in 2009?  
• Is he taking calls about this fund on the radio show as a way to sell newsletters to those who lost money in the fund without telling them the fund behaves more like a stock than a typical bond fund?
• Brinker got bearish in 2009 by taking off "dollar cost average new money" to his "fully invested position at the very bottom... now at new record highs, he is recommending selling a typical, relatively safe bond fund to buy a fund that holds junk bonds and behaves like a stock fund?  Another contrarian indicator?

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Charts and Price Quote for

VFIIX - Vanguard GNMA "Ginnie Mae" Fund

and

US Treasury Rates at a Glance

VFIIX - Vanguard's GNMA Fund

Vanguard's GNMA Fund with ticker VFIIX (Charts and current quote) is Bob Brinker's favorite bond fund to talk about on his show "Money talk with Bob Brinker."  Brinker recommends VFIIX on the radio and in his "Marketimer" newsletter portfolios that are not 100% in equities.

Bob has told callers who are worried about net asset value (NAV) fluctuations leading to potential losses to either use a stop loss at a price they don't want to lose any more money or to put the funds in FDIC insured CDs.

This chart shows how the fund has performed on a NAV basis since January 1, 2012.

Bob Brinker's Favorite Bond fund is down fairly significantly this year. I wonder how many expected VFIIX to fall so suddenly?

According to Vanguard, the "income return" from the fund last year was only 2.7%

This means the fund has lost money for anyone who held it as of December 31, 2011 or later. Here is a chart showing the fund adjusted for dividends.

VFIIX with price adjusted for dividends showing a loss since 1/1/2012

Note how VFIIX was a money maker for anyone who "sold in May" at the very top on a basis adjusted for dividends.  Like fame, that was fleeting...

Does these charts erase any doubts about Brinker's ability to time either the stock or bond markets?

FWIW, I got out of Vanguard's GNMA fund some time ago and have my core and explore fixed income funds mostly in a savings account earning 0.85%.  It was not flashy, but making over 1% since 2011 sure beats losing money for a "safe" investment.  I tell my subscribers that I prefered to take my risks in my explore portfolio with equities plus I have TIPS and I-Bonds bought as new issues from the US Treasury so they, unlike bond funds, never lose money.  For more info, see:

• CurrentSeries I Bond Rates
• BestSavings Account Rate Survey 
• VeryBest CD Rates with FDIC

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Bob Brinker's GNMA Advice

Summary: Bob Brinker March 18, 2012 Moneytalk Radio Show.

For a full show summary, see Moneytalk Summary - March 18, 2012

GNMA
Caller:  This caller asked Bob what she should do with her GNMA fund given that rates have gone down and if she sells, what should she go into?  Bob said the second part of the question was the hard part and a problem.  Bob said he likes to invest for income in the context of an overall portfolio.  If you follow Bob’s lead, you are either going to go with his Income Only portfolio or a Balanced Portfolio which has 50% in fixed income.  Bob said he has GNMA component in both  of those portfolios and continues to hold them.  Bob said he would rather that be a given percentage of a portfolio, but not the entire portfolio.  Bob said in his Income Portfolio, GNMA is one of five holdings and in the Balanced Portfolio there are other holdings as well.

Caller:  This caller heard some talk shows over the weekend and he heard a lot of concern over the GNMA Fund because of inflation fears.  Bob said the people who are voicing that concern probably never recommended them in the first place.  GNMA has been one of the best performing fixed income securities for a long time, even through a difficult time.  Bob said the Vanguard GNMA Fund is trading within 1-2% of its all time high.  At the same time, you will have fluctuation in net asset value and so if you are unwilling to accept that fluctuation you can set a mental stop, but then you might sell and have cash and not have many places to put it in this low interest rate environment.

EC:  Here is a link to an article entitled, “What to do about low interest rates” that includes a reference to holding a GNMA Fund:  http://tinyurl.com/84n86yw

Kirk Here: These are some related charts and quotes:

GNMA (VFIIX), Total Bond (VBMFX),  TIPS (VIPSX)
High-Yield/Junk Bond (VWEAX)

For a full show summary, see Moneytalk Summary - March 18, 2012

This above is a subset of the March 18, 2012 issue of "David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service." Together David Korn and I write "The Retirement Advisor" newsletter.

CLICK HERE to download a FREE issue of "The Retirement Advisor."  Website for more information and annual Performance Data

If you would like a free sample of David's complete Newsletter and his "Retirement Advisor" newsletter, then click this link to send an email request and please tell us a bit about yourself too.

Bob Brinker's Vanguard GNMA Fund (VFIIX) Advice

Vanguard GNMA + Cash Reserves Advice

Vanguard's web site says their GNMA fund (VFIIX quote & Charts) will go "ex dividend" on Dec. 29 with a 23¢ payout. If you are using "Bob Brinker's GNMA Advice to use a Stop Loss" to protect yourself from high net asset value loss, then you should reduce your stop price to account for this distribution.

Current Quote for VFIIX

As many regular readers if this blog know, I sold my GNMA fund awhile ago and bought TIPS and iBonds. I also sold all my bond funds not indexed to inflation. I put the remainder of my "fixed income money" in short term savings accounts that earn 1% or more. I have no reason to take bond fund risk until the Federal Reserve "normalizes" interest rates.

Some people need the income but I tell my subscribers there is a better alternative. I recommend selling SOME of your appreciated stocks or funds when you do your annual rebalance then use some of the profit taking cash for spending over the next year. Put the money into a savings account to use during the year to replace the income from bond interest and dividends. My explore portfolio is up 17.9% YTD so I've already taken significant profits.

I currently have the bulk of my fixed income cash at HSBC Bank and StarOne Credit Union. They both just dropped rates so I am leaning towards moving some of the money to American Express for 1.30%. For details, click "Learn More" here. If you hear of a large bank paying a better rate for short term savings, send me an email with the details.

Fixed Income Advice

This is what I sent my newsletter subscribers earlier today:

Hello Subscribers

I moved my explore portfolio cash reserves from Schwab, where I was earning 0.25%, to American Express Bank where they are paying 1.30% APY.

If you have significant funds in a retirement account at Vanguard's prime money fund and don't want to move to another institution, then  I suggest making a ladder of CDs with Vanguard's CD Ladder tool.  Divide the funds into 5 buckets. Keep 1 bucket (20%) in Prime money fund ready for any buying opportunities or potential rebalancing, then put the remaining 80% into CDs for 3, 6, 9 and 12 months.  As the 3,6 and 9 month CDs mature, buy a new 1-YR CD.  After 9 months, you will have four one year CDs with one maturing every quarter.  When interest rates normalize, you can put the CD funds into the total bond fund again.

You can get an idea what different banks are paying for CDs and savings accounts for various amounts by using the rate tool here.  I use American Express because it is available to everyone and it is "too big to fail."  You can often find better deals with more restrictions such as the 1.3% at Capital One plus 10% bonus and up to $60 credit detailed here, but you have to be a member of Costco.

For reporting simplicity, I have enough to calculate already, I will keep my core portfolios fixed income in Vanguard's prime money fund knowing it is a slight drag on my reported performance compared to the above CD ladder strategy.

The difference between 1.30% at American Express and 0.06% at Vanguard is $1,240 per $100,000.  Thus it is worth the trouble if you have significant money in fixed income you don't want exposed to rising rates in the bond market.

2010 YTD my "Explore Portfolio" is up 18.7% YTD
(My explore portfolio has 70% in equities and 30% in fixed income so the stocks are doing very, very well)

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In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%

Bob Brinker's GNMA Advice

Yesterday on Moneytalk a caller asked Bob Brinker if he should move his money (about $40,000) out of the Ginnie Mae (GNMA) fund Brinker recommends into something else. The caller was worried that interest rates could suddenly surge and cause the net asset value (NAV) of the fund to fall.

For many years, Bob Brinker has recommended Vanguard's GNMA fund (VFIIX charts and more info) on Moneytalk.  He said he expected the fund to trade between $9.50 and $10.50 so the current price of $11.08 is well above his expectations but makes the advice even better.

The caller's question is excellent because the 30 year chart here shows the fund fell in 1987 from about $10.20 to $8.60 or $1.60 in less than a year. 

• ( $1.60 / $10.20) x 100% = 15.7%

Click for Larger Image

More GNMA Charts

Brinker's advice to the caller was to use a mental stop-loss of $10.90. That means if the fund falls from Friday's close of $11.08 to $10.90, then you sell your position. That would protect your NAV decline to 18¢ or about 1.6% of Friday's price. Until then, you can continue to collect the interest that is currently yielding 3.15%.

Vanguard GNMA "Ginnie Mae" Fund VFIIX

• Historical Chart 
• More VFIIX Charts 
• More Info 
•  US Treasury Rates at a Glance

Stop Loss Warning:  Brinker's advice to use a stop loss of $10.90 for VFIIX is good if you are able to execute it perfectly.  What happens if the fund falls in a day from $10.91 to $10.70?  Will you sell the next day at $10.70 or will you try and wait for a bounce to sell at $10.90?  My experience is people, even Brinker himself with his failed QQQ trade, often end up waiting for a bounce to sell into that never comes. 

IF you are worried about NAV declines, then it might make it easier to sell to protect larger losses at $10.70 if you sell half the fund now at $11.08 and put the money into CDs.  That would still give you an average price of $10.90 should the fund gap down to $10.70 where you then sell the remainder of the fund if it gaps lower than your stop loss of $10.90.

Another trick is set your stop loss HIGHER so you get out before those who follow Brinker's advice.  With Brinker's large listening audience, the gap down the day after VFIIX trades at $10.90 could be huge so perhaps set your stop at $10.95.

History:
Look at how quickly VFIIX jumped in 1987 when money poured out of stocks.

Vanguard's GNMA Fund VFIIX in 1987

Remember too that stocks were doing great in 1987 up until Black Monday.

Vanguard's SnP500 Fund VFINX in 1987

Those two charts show well how bond and stock funds usually go in opposite directions which is why they are so good for diversification.

Many of the stocks in "Kirk's Newsletter Explore Portfolio" are paying a great dividend while selling at very low price to earnings multiples.  My portfolios are up significantly over the past 10 years while the index funds are down.   I expect equities to significantly out perform bonds and probably CDs over the next decade and my portfolio should do even better.

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In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%

2010 YTD my "Explore Portfolio" is up 17.4% YTD
(the explore portfolio has 70% in equities and 30% in fixed income so the stocks are doing very, very well)

TIPS vs GNMA Performance with 2.2% Inflation Rate

TIPS vs GNMA Performance update with 2.2% CPI-U Inflation Rate.  Both securities are backed by the U.S. government.

Bob Brinker continues to recommend Vanguard's GNMA Fund, VFIIX, on his radio show. Over the course of last year, I sold out of my "explore portfolio" position in Vanguard's GNMA fund and replaced it with individual TIPS.  A good, recommended alternative is Vanguard's TIPS fund, VIPSX.

Vanguard Comparison Table
Vanguard Fund (5/24/10)	SYMBOL	Yield	YTD
GNMA	VFIIX	2.97%	2.79%
Total Bond Index	VBMFX	3.01%	4.05%
Prime Money Market Fund	VMMXX	0.05%	0.01%
Inflation Protected Security Fund (TIPS)	VIPSX	0.65%	3.00%
Total Stock Market Index Fund (for comparison)	VTSMX	1.48%	-0.95%

Last Week's CPI Press Release says Year-over-year CPI rose at a 2.2% rate.

On a seasonally adjusted basis, the Consumer Price Index for All  Urban Consumers (CPI-U) declined 0.1 percent in April, the U.S.  Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 2.2 percent before seasonal adjustment.

• My 5-yr TIPS with a 1.25% base rate will earn 3.35% at this rate of inflation.
• My 20-yr TIPS with a 1.375% base rate will earn 3.575% at this rate of inflation

In the Retairement Advisor newsletter, we recommended the TIPS fund from Vanguard, VIPSX, over TIPS for all of 2009 and so far this year.

2009 Total Return
VFIIX = 6.9%
VBMFX = 5.9%
VMMXX = 0.53%
VIPSX =  10.8%
VTSMX = 28.7%

• GNMA:  Government National Mortgage Association (”Ginnie Mae”) securities. 
• TIPS:  Treasury Inflation Protected Securities 

More Information:

• Los Altos Town Crier Newspaper Article about my success
• Kirk's Two Investment Letters
• Newsletter Testimonials 

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Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 159% (a double plus another 59%!!) vs. the S&P500 UP a tiny 8.6% vs. NASDAQ UP a tiny 3.5% (All through 12/31/09) 

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TIPS vs GNMA Performance Update with 2.1% CPI-U Inflation Rate

Bob Brinker continues to recommend Vanguard's GNMA Fund, VFIIX, on his radio show. Over the course of last year, I sold out of my "explore portfolio" position in Vanguard's GNMA fund and replaced it with individual TIPS.

Today's CPI Press Release says Year-over-year CPI rose at a 2.1% rate

On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 2.1 percent before seasonal adjustment.

Not seasonally adjusted CPI measures: The Consumer Price Index for All Urban Consumers (CPI-U) increased 2.1 percent over the last 12 months to an index level of 216.741 (1982-84=100). For the month, the index was unchanged prior to seasonal adjustment.

My 5-yr TIPS with a 1.25% base rate will earn 3.35% at this rate of inflation
My 20-yr TIPS with a 1.375% base rate will earn 3.475% at this rate of inflation

In my other newsletter, The Retirement Advisor, we recommended Vanguard's TIPS fund, VIPSX, over Vanguard's GNMA fund last year.

Vanguard's GNMA fund, VFIIX currently at $10.82, currently yields 3.16% and will lose NAV (net asset value) if inflation spikes in the future. It will gain NAV if we see deflation and rates drop.

ECRI says we have begun a cyclical upturn in inflation. That doesn't mean we will get hyper (over 10%) inflation, but it means deflation is off the table.

• April 03, 2009: Upturn in ECRI's WLI Growth Rate Says US Business Cycle Recovery Ahead
  
• February 05, 2010: ECRI Global Inflation Outlook - Higher Inflation Ahead
  

Owning Vanguard's TIPS fund over its GNMA fund paid off last year:

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

More information:

• Kirk's Two Investment Letters

• October 25, 2009: Bob Brinker's GNMA VFIIX Bond Fund Timing Advice & My Alternatives